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Minimum profits test

M

Mbotha

Member
According to ch7 pg 11:
"If the minimum profits test does not bite (ie the minimum profit is lower than the adjusted "I-E" figure) then:
- an amount of the I-E equal to that part of the minimum profit not derived from dividends is taxed at the corporation rate
- the balance is taxed at the policyholder rate"

Does this mean that:
  • Min. Profit less dividend income (called shareholders' unfranked profit) is taxed at the shareholder rate?
  • Unadjusted I-E (ie. No dividends added back) less shareholders' unfranked profit is taxed at the policyholder rate?
 
What products are classified as BLAGAB business? I know general annuities are BLAGAB but it feels like all other products are listed under Non-BLAGAB (pensions, life protection, PHI etc.).
 
Also protection business written before 1 January 2013 (it is only protection business written since then which is in the non-BLAGAB fund for taxation purposes), plus life assurance business written as savings rather than protection e.g. endowment assurances, whole life assurances.
 
Lindsay Smitherman said:
life assurance business written as savings rather than protection e.g. endowment assurances, whole life assurances.
Click to expand...

Thanks, Lindsay!

"...written as savings business..." meaning with-profits or unit-linked versions of these contracts?
 
Could be conventional without profits too. I used the phrase "savings business" here to mean any life assurance product which does not meet the definition of "protection business" as per taxation rules. This definition is explained in Section 1.1 of Chapter 6. Endowment assurances and whole life assurances do not meet the definition of protection business because benefits payable on maturity (for the former) and surrender would normally exceed the premiums paid.
 
Hello, I'm trying to understand what's going on with question 7.1 on page 5 of chapter 7. What happens with the difference between the min profit of 300 and 250?
 
Last edited by a moderator:
Hi Viki

You only take into account the minimum profit arising from unfranked income (i.e. minimum profit minus dividends). In this case, that figure is 250 rather than 300. (Remember that I-E doesn't include franked income, i.e. dividends, either - so it makes sense to compare I-E with only the unfranked part of minimum profit.)
 
Hello, I am a bit confused by the last sentence of section 5.2 from chapter 7 Life insurance company taxation. It says " in both cases (in context of minimum profit test) the I-E value is that originally calculated and so excludes any dividend income.

I am confused because the minimum profit test as per section 3.3. prescribes comparing the minimum profit against the adjusted I-E results which is I-E plus dividend income.

So what is section 5.2 trying to say about excluding dividends?
 
Hi Viki2010

In carrying out the minimum profits test, you compare minimum profit to the adjusted I-E. However, once you've done that and determined whether the test bites or not, tax is calculated on the original amounts (excluding dividends). The first couple of posts in this thread touches on some of that (see above).
 
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