The Government announced last month the review to consider whether life insurance should be included in proposed rules for taxing managed funds to prevent the sector from being disadvantaged relative to other forms of saving.

A discussion document issued yesterday by the Inland Revenue Department and the Treasury says the life insurance industry and Government officials will have to agree on new rules by January for them to be included in the bill.

PricewaterhouseCoopers tax partner John Shewan said officials were making a concerted effort to have the new rules in place to apply from October 1 next year to coincide with the introduction of new tax rules for other savings institutions.

The paper says the commercial, regulatory, accounting and savings environments have changed markedly since the current life tax rules came into effect in 1990.

The industry had changed its products and ways of doing business. This had led to anomalies and inequities in the way life companies were taxed.

The first separates the investment returns from life insurance returns and treats bonuses and payouts to policy holders as if they were a dividend.

The second, much simpler, option would essentially involve life insurance being taxed at the standard company tax rate of 33 per cent on reported profit.

This is cache, read story here