INCOME TAX RETURNS

Otago Daily Times, Issue 23516, 2 June 1938, Page 12

INCOME TAX RETURNS

CONFUSION OVER EXEMPTIONS PURE ENDOWMENT ASSURANCES DEFINITION OF THE TERM (Special to Daily Times) WELLINGTON, June 1. A sub-section in the form of income tax return which is required to be completed not later than today is stated to be responsible for some confusion. This is the clause dealing with the exemption from tax of life assurance premiums of the pure endowment type. In subsection (A) of clause (C), under the claims for' special exemptions, it is stated that no allowance is given for premiums paid on any pure endowment policy effected after December 12, 1933. It was learned from a number of life companies that many people are unfamiliar with the distinction between a pure endowment and any other policy. _ The definition is contained in section 5 of the Land and Income Tax Amendment Act, 1933, which provides that, notwithstanding anything in the principal Act, special exemption shall not be allowed in respect of premiums paid on any pure endowment policy effected after the passing of the amending Act—i.e., after December 22, 1933. The section goes on to define a pure endowment policy as one which does not provide for the payment of a specified capital sum on the death of the assured person. “ There are not a great many pure endowment policies sold,” said an officer of a life assurance company, “because it is not such an attractive proposition as the usual type under which the sum assured is paid either at death or at a specified age. Nevertheless, we have had many inquiries from holders of endowment policies who are uncertain about the exemption.” The absence of any definition of the term “pure endowment policy,” as used in the form of income tax return, was pointed out to officials of the department, who admitted that the meaning might be hidden from the ordinary individual though it was perfectly clear to anyone connected with life assurance. The length of the definition, it was stated, was the chief obstacle to its inclusion. The officers also admitted the possibility that some holders of endowment policies might have refrained from claiming exemption under the impression that none was allowed in respect of any endowment policy premium. The department, of course, would have no knowledge of these. A good many inquiries about the meaning of the term “ pure endowment policy ” had been received, so that the department could not claim that the section was generally undershisd, but on the assessment and collection side there had been no trouble, and it was presumed that policy-holders took care to inquire from the insurance companies the exact degree of exemption. It would become clear if it were remembered that a pure endowment policy was merely a form of saving and the premium for that reason was not exempt from income tax. The practice of taking out an endowment policy with the amount payable at death limited to £ 1 was described as a method of tax evasion. “We do not, however, want too much said about that,” said an official.