THE TAXATION OF MUTUAL LIFE ASSOCIATIONS.

Otago Daily Times, Issue 17215, 18 January 1918, Page 4

THE TAXATION OF MUTUAL LIFE ASSOCIATIONS.

The policy which should govern the taxation of mutual life assurance associations is one that has been forced into prominence through tho heavy demands now being made by the taxing departments upon these associations. It is a subject to which attention was directed, in the discussion of the Finance Bill in the Houso of Representatives last session, by Sir J. G. Findlay, who entered a well-considered plea for the 'recognition of tho fact that tho several mutual life associations which are doing business in New Zealand are not profit-making concerns in the ordinary acceptation of that expression but are conducted on the principle that their surplus funds are eventually re turned to the policy-holders. While it i might be an extreme argument that these associations should not bo assessed for war taxation, there is a great deal of force in the contention that taxation on them should bo imposed only upon surplus income and not upon tho revenue yielded by the sum total of all their investments. The revenue of a mutual life insurance company is primarily derived from the premiums paid by the policy-holders. This premium is divisible into two parts. The first part, designated "pure premium," consists of the contribution fixed by expert actuarial advice as that which is essential to covering the insurance contracted for. The second jfart of the premium, technically termed "the loading," covers the cost of carrying on the business. The profits of mutual life insurance offices principally accrue from the excess of the interest earned from the investment premiums over the actuarial estimate and from any saving in tho working expenses. All such surpluses, whether earned or saved, are, after due provision has been made for liabilities, returned to the policy-holders in the form of bonuses. Before the need arose for the imposition of war taxation, the only levy made by the Government of the dominion upon the mutual life associations was through the medium of the , mortgage tax, but in terms of "The Land and Income Tax Act, 1916," all "foreign" mutual life associations became liable to the payment of income tax based upon the total income from their investments. This new basis of taxation is open to criticism upon two points— first, because it discriminates between the New Zealand Government Life Insurance Department and all the other mutual life associations; and secondly, because the income tax is levied upon the investment income without regard to the losses and liabilities of the association. The extent to which the new Act discriminates between tho "home" and the "foreign" association may best be illustrated by a comparison between the cases of the Government Life office and tho Australian Mutual Provident Society, the extent of the discrimination depending upoa the nature of the comparison. The publication of correspondence which has passed between the Minister of Finance and Mr A. de B. Brandon, deputy-chairman of the New Zealand Board of Directors of the A.M.P. Society, throws an interesting light on this point. Mr Brandon indicates the existence of a grievance in his society by comparing the New Zealand business of the A.M.P. Society with the whole business of the Government Life Office. Sir Joseph Ward seeks to justify the system of taxation which has been adopted by comparing the world business of the A.M.P. Society with the Government department's figures, and claims in effect that tho alleged discrimination is so slight as to be virtually negligible. Certainly, however, Mr Brandon occupies firm ground when ho urges that "if a mutual life insurance society is to be assessed at all for income tax, the assessment should be in rolation to tho surplus over tho valuation reserve," and when he suggests that tho Government "should avoid assessing and levying taxes on mutual insurance societies on any basis, an examination and analysis of which show that tho Government of Now Zealand, in its necessity for revenue, has been compelled to assess for taxation that part of the receipts of theso societies which solvency demands must be carried to reserve to meet prospective claims." The strongest argument in favour of the exemption from war taxation of tho investment income of mutual life insurance societies is that these investments represent the savings of thousands of men and women, who in this way aim at making proper provision for the old ago of themselves and their dependents. That it should bo the aim of the Government to encourage this form of thrift is hardly contestable.