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BLAGAB Dividend Income

Discussion in 'SA2' started by PhamThinhLe, Jul 14, 2020.

  1. PhamThinhLe

    PhamThinhLe Member

    Would like to check my understanding on effective tax on dividend income for BLAGAB.

    Suppose company receives 10 dividend income, and increase the p/h account value by 5 say, then (ideally) shareholder's share of dividend would also be calculated out to be 5, so that

    BLAGAB trade profit +10 - 5 = +5 BUT

    I-E no change
    SP +5 - 5 = +0 no change --> PTP no change

    So effective tax (ideally) on dividend income allocated to BLAGAB is 0%?

    Also, if we look from the trade profit pov then effectively s/h share of dividend income is not part of trade profit, but p/h share is to offset the same increase in p/h liabilities - this is what the course notes mean by "retaining elements of dividends in the BLAGAB trade profit which are included in the assets which support policyholder liabilities"? (p20 ch7 CMP 2020)

    Thanks for any replies.
     
    Last edited by a moderator: Jul 14, 2020
    PhamThinhLe, Jul 14, 2020
    #1
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    Yes, basically any shareholder share of dividend income must be deducted before we compare with I - E. So in your example, the 5 policyholder share would be offset by an increase in the policyholder's liabilities in the trading profit calc. And then the 5 shareholder share would need to be deducted before the comparison is made between this adjusted trading profit and the I - E computation.
    Please note the split between shareholder and policyholder dividend income is not required for SA2.
    Hope this helps.
    Thanks
    Em
     
    Em Francis, Jul 15, 2020
    #2

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