South Africa: Tax implications for insurers of accounting standard changes regarding insurance contracts

New accounting standard that changes the way insurance contracts are accounted for

New accounting standard that changes the way insurance contracts are accounted for

IFRS 17 Insurance Contracts (IFRS 17) is the new accounting standard that changes the way insurance contracts are accounted for. This new standard replaces the interim standard IFRS 4 Insurance Contracts, and will be effective for reporting periods commencing on or after 1 January 2023.

Changes will be required to South Africa’s income tax law in order to align the tax law with terminology referred to in IFRS 17. In order to mitigate the tax implication as a result of the difference between the methodologies underlying IFRS 4 and IFRS 17, it is proposed that changes be made to section 29A of the Income Tax Act, including:

  • The definition of “value of liabilities” would be amended to refer to all other liabilities that fall outside of the “adjusted IFRS value” definition but that are allocated to policyholder business.
  • The implementation of IFRS 17 introduces a distinction in the accounting recognition and disclosure between insurance contract liabilities (in terms of IFRS 17) and investment contract liabilities in terms of IFRS 9. It is proposed that changes be made to refer to “investment contract liabilities” instead of the current general reference to liabilities. 
  • The draft tax amendments propose certain phasing-in measures.

Read an August 2022 report [PDF 304 KB] prepared by the KPMG member firm in South Africa

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.