Concern at tax ruling

Press, 18 December 1985, Page 6

Concern at tax ruling

PA Wellington Insurance companies have expressed alarm at a High Court decision which could mean all life insurance payouts at death or. maturity are taxable. Until now, such payments have been treated as capital items, which have been taxfree, the “New Zealand Herald” reports.

But in the High Court at Wellington, Mr Justice Ongley ruled that to the extent they exceed premiums paid by the policyholder, payouts on Marac Life Bonds constituted interest payments on “money lent,” and were taxable.

Marac had sought a declaratory judgment after comments by the Parliamentary Under-Secretary for Finance, Mr de Cleene, and a decision by the Inland Revenue Department that the bonds were taxable because they provided a return on maturity if a bondholder did not die beforehand.

Mr Justice Ongley found that Parliament probably

did not intend to make life insurance payments taxable when it passed an amendment to the Income Tax Act in 1983 dealing with other matters. But he ruled that the clear meaning of the definition of “money lent” in the amendment was to include life insurance premiums. He also found that Marac Life Bonds did constitute life insurance.

The general manager of Marac Life Assurance, Ltd, Mr Mark Porath, said the company would lodge an appeal against the main decision with the Court of Appeal immediately. An Auckland tax expert, Dr Robin Congreve, said the judgment should be taken with great caution, as it was obviously a case which would have to go to the Court of Appeal and was a result which Parliament could not ignore. He said the appeal court traditionally had the power to interpret a law with a wider view than lower courts.