Section 60. Insurance business. (INCOME TAX ACT 1967

INCOME TAX ACT 1967 (ACT 53)
PART III - ASCERTAINMENT OF CHARGEABLE INCOME
Chapter 8 - Special cases

Section 60. Insurance business.

(1) This section shall apply for ascertaining the adjusted income for the basis period for a year of assessment from the insurance business of an insurer.

[Am. Act A328; Act A471:s.9]

(2) For the purposes of this section-

(a)

subject to paragraph (b), where an insurer carries on life business in conjunction with general business, the life business and the general business shall be treated as separate insurance business;

[Ins. Act 264:s.8]

(b)

(i) where an insurer carries on inward re-insurance business, the inward re-insurance business and the general business (excluding the inward re-insurance business and off-shore insurance business) shall be treated as separate general businesses;

[Ins. Act 264:s.8]

(ii) where an insurer carries on off-shore insurance business, the offshore insurance business and the general business (excluding the off-shore insurance business and inward re-insurance business) shall be treated as separate general businesses;

[Ins. Act 264:s.8]

(c)

where an insurer carries on life business, the income of the life fund shall be treated as a separate source of income from the income of the shareholders' fund in respect of the life business:

[Ins. Act 531:s.12; Am. Act 578:s.13]

Provided that-

(i) where the insurer also carries on life re-insurance business, the life reinsurance business shall be a separate source from life business and shall be treated as a general business; or

(ii) where the insurer also carries on inward life re-insurance business, the inward life re-insurance business shall be a separate source from life business and shall be treated as a general business;

(d)

where an insurer carries on only life re-insurance business, the life reinsurance business shall be treated as a general business.

[Ins. Act 578:s.13]

(3) The adjusted income of the life fund other than income arising from life re-insurance business, for the basis period for a year of assessment of an insurer resident for the basis year for that year of assessment shall be ascertained by-

[Subs. Act 531:s.12, Am. Act 578:s.13]

(a)

taking the aggregate of-

(i) the amount of gross income for that period from the investments made out of any of the insurer's life funds; and

(ii) the amount of any gross proceeds (whether or not of an income nature) which are not gross income to which subparagraph (i) applies and which are first receivable in that period in connection with the realisation of those investments or any rights arising from them; and

(b)

deducting from that aggregate where paragraph

(a)

(ii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realising those investments or rights.

(3A) The adjusted income of the shareholders' fund for the basis period for a year of assessment of an insurer resident for the basis year for that year of assessment shall be ascertained by-

(a)

taking the aggregate of-

(i) the amount of gross income for that period from the investments made out of any of the shareholders' funds; and

(iii) the amount of the actuarial surplus from the life fund that is transferred to the shareholders' fund; and ;

[Subs. Act 591:s.8]

(b)

deducting from that aggregate-

(i) where paragraph

(

(ii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realising those investments or rights; and

(ii) so much of the amount transferred from the shareholders' fund as is equal to the actuarial deficit (subject to any adjustment as the Director General may think fit to make in accordance with the provisions of this Act) for that period arising from the life fund, other than the deficit from life re-insurance business.

[Subs. Act 544:s.10; Am. Act 578:s.13]

(4) The adjusted income of the life fund, other than income from life re-insurance business, of an insurer not resident for the basis year for that year of assessment shall where that business is wholly or partly carried on in Malaysia be ascertained by-

[Subs. Act 531:s.12; Am. Act 578:s.13]

(a)

taking the aggregate of-

(i) the amount of gross income for that period from investments made (in Malaysia or elsewhere) out of the insurer's Malaysian life fund; and

(b)

deducting from that aggregate where subparagraph

(a)

(ii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realising those investments or rights.

(4A) The adjusted income of the shareholders' fund for the basis period for a year of assessment of an insurer not resident for the basis year for that year of assessment shall, where that business is wholly or partly carried on in Malaysia, be ascertained by-

(a)

taking the aggregate of-

(i) the amount of gross income for that period from the investments made out of any of the shareholders' funds; and

(iii) the amount of the actuarial surplus from the life fund that is transferred to the shareholders' fund; and

[Sub. Act 591:s.8]

(b)

deducting from that aggregate-

(i) where subparagraph

(a)

(ii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realising those investments or rights; and

[Subs. Act 544:s.10, Am. Act 578:s.13]

(4B) The adjusted income as ascertained under subsections (3A) and (4A) shall be deemed to be the statutory income from that source.

[Subs. Act 531:s.12]

(5) The adjusted income for the basis period for a year of assessment from the general business of an insurer resident for the basis year for that year of assessment shall consist of an amount arrived at by-

(a)

taking the aggregate of-

(i) the amount of the gross premiums first receivable in that period in respect of general policies issued by him (less the amount of any premiums received at any time in respect of any such general policies and returned by him during that period);

(ii) the amount of any other gross income for that period from the general business of the insurer (including any commissions and any interest or other income from investments held in connection with that business);

(iii) the amount of any gross proceeds (whether or not of an income nature) which are not gross income to which subparagraph (ii) applies and which are first receivable in that period in connection with the realisation of those investments or any rights arising from them;

(iv) any amounts recovered or recoverable by him in that period under re-insurance contracts made in connection with the business; and

[Am. Act 531:s.12]

(v) the amount of his reserve fund for unexpired risks at the end of the immediately preceding basis period; and

(b)

subject to subsection (7), deducting from that aggregate the amount of-

(i) claims incurred in that period in connection with his general policies;

[Sub. Act 531:s.12]

(ii) re-insurance premiums payable by him in that period in connection with that business;

(iii) commissions payable and discounts allowed by him in that period in connection with that business;

(iv) management expenses incurred by him in that period in connection with that business;

(v) his reserve fund for unexpired risks at the end of that period; and

(vi) where subparagraph (

) (iii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realising those investments or rights.

(5A) The adjusted income for the basis period for a year of assessment from the inward re-insurance business of an insurer resident for the basis year for that year of assessment shall consist of an amount arrived at by applying subsection (5) as if references therein to "general business" and "general policies" were references to "inward re-insurance business" and "inward re-insurance contracts" respectively.

[Ins. Act A471:s.9]

(5B) The adjusted income for the basis period for a year of assessment from the off-shore insurance business of an insurer resident for that basis year for that year of assessment shall consist of an amount arrived at by applying subsection (5) as if references therein to "general business" and "general policies" were references to "off-shore insurance business" and "off-shore insurance policies" respectively.

[Ins. Act 264:s.8]

(5C) The adjusted income for the basis period for a year of assessment from the life re-insurance business of a life insurer resident for the basis year for that year of assessment shall consist of an amount arrived at by applying subsection (5) as if references therein to-

(a)

"general business of an insurer" were references to "life re-insurance business of a life insurer";

(b)

"general policies" were references to "life re-insurance policies"; and

(c)

"reserve fund for unexpired risks" were references to "actuarial valuation reserve"

[Ins. Act 578:s.13]

(6) The adjusted income for the basis period for a year of assessment from the general business of an insurer not resident for the basis year for that year of assessment shall where that business is wholly or partly carried on in Malaysia consist of an amount arrived at by-

(a)

taking the aggregate of-

(i) the amount of the gross premiums first receivable in that period in respect of Malaysian general policies issued by him (less any premiums received at any time on account of any such Malaysian general policies returned by him in that period);

(ii) the amount of any other gross income for that period derived from Malaysia from that business (including gross income consisting of commissions and gross income from investments, wherever made, held in connection with that business);

(iii) the amount of any gross proceeds (whether or not of an income nature) which are not gross income to which subparagraph (ii) applies and which are first receivable in that period in connection with the realization of those investments or any rights arising from them;

(iv) any amounts recovered or recoverable by him in that period under re-insurance contracts made in connection with Malaysian general policies of that business; and

(v) the amount of his reserve fund for unexpired risks relating to any such Malaysian general policies at the end of the immediately preceding basis period; and

(b)

subject to subsection (7), deducting from that aggregate the amount of-

[Subs. Act 531:s.12]

(i) claims incurred in that period in connection with his Malaysian general policies;

[Am. Act 531:s.12]

(ii) re-insurance premiums pay able by him in that Period in connection with any such Malaysian general policies;

(iii) commissions payable and discounts given by him in that period in connection with any such Malaysian general policies;

(iv) management expenses incurred by him in Malaysia in that period in connection with that business;

(v) his reserve fund for unexpired risks relating to any such Malaysian general policies at the end of that period;

(vi) a portion of the insurer's head office expenses incurred by him in that period which is fair and reasonable if, in relation to that period regard is had to the gross premiums receivable by him in respect of Malaysian general policies issued by him in that period as compared with the total gross premiums receivable by him in respect of all general policies issued by him in that period; and

(vii) where paragraph

(a)

(iii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realising those investments or rights.

(6A) The adjusted income for the basis period for a year of assessment from the inward re-insurance business of an insurer not resident for the basis year for that year of assessment shall, where that business is wholly or partly carried on in Malaysia, consist of an amount arrived at by applying subsection (6) as if references therein to "general business" and "Malaysian general policies" were references to "inward re-insurance business" and "inward re-insurance contracts" respectively.

[Am. Act A471:s.9]

(6B) The adjusted income for the basis period for a year of assessment from the off-shore insurance business of an insurer not resident for the basis year for that year of assessment shall, where that business is wholly or partly carried on in Malaysia, consist of an amount arrived at by applying subsection (6) as if references therein to "general business" and "Malaysian general policies" were references to "offshore insurance business" and "offshore insurance policies" respectively.

[Ins. Act 264:s.8]

(6C) The adjusted income for the basis period for a year of assessment from the life re-insurance business of a life insurer not resident for the basis year for that year of assessment shall, where that business is wholly or partly carried on in Malaysia, consist of an amount arrived at by applying subsection (6) as if references therein to-

(a)

"general business of an insurer" were references to "life re-insurance business of a life insurer";

(b)

"Malaysian general policies" were references to "Malaysian life re-insurance policies"; and

(c)

"reserve fund for unexpired risks" were references to "actuarial valuation reserve"

[Ins. Act 578:s.13]

(7) "(7) Where an insurer carrying on general business has re-insured the risk or part of the risk with a re-insurer who either does not carry on the business of insuring risks of that kind in Malaysia or does not re-insure the risk through a branch in Malaysia, there may be deducted under subsection (5)(b)(ii) or (6)(b)(ii) in respect of such risks which are re-insured only ninety-five percent of the amount which would otherwise be deductible:

Provided that in a case to which subsection (6), (6A) or (6B) applies-

(a)

the insurer may elect that no deductions shall be made under subparagraph (6)

(b)

(ii); and

(b)

where he does so-

(i)

the election shall be irrevocable and shall apply in relation to the basis period for the year of assessment for which it is made and for the basis periods for all subsequent years of assessment; and

(ii) amounts recoverable under re-insurance contracts shall be disregarded for the purposes of subparagraph (6)

(a)

(iv).

[Subs. Act 544:s.10]

(8) Where an insurer in connection with his life business or his general business receives any incidental gross income (not being a premium on a policy issued in the course of carrying on that life or general business) for which subsections (3) to (7) do not provide, that income shall be treated as income of the insurer falling under paragraph 4(f) and he shall be deemed to have a separate source in respect of it.

(9) For the purposes of this section an insurer's reserve fund for unexpired risks at the end of a basis period shall consist of-

(a)

twenty-five per cent of the difference between the gross premiums first receivable by him in that period in respect of marine, aviation or transit policies issued by him and the amount deducted under subsection (5)(

) (ii) or (6) (

) (ii); and

(b)

an amount calculated based on the method of computation as determined by the relevant authority regulating the insurance industry and which is consistently applied to premiums first receivable by him in that period in respect of other general policies issued by him (less the amount deducted under subparagraph 5

(b)

(ii) or 6

(b)

(ii)).

[Subs. Act 608:s.14]

(10) Where under this section all such deductions as would be made in computing what would have been the adjusted income for the basis period for a year of assessment from the insurance business of an insurer if any such adjusted income had been ascertainable exceed the aggregate of the amounts from which those deductions would otherwise have been made, the amount of the excess shall be taken to be the amount of his adjusted loss from that business for that period.

(10A) Notwithstanding subsection 43(2) and section 60(10), any unabsorbed losses of the life business shall only be available for deduction against the statutory income for the basis period for a year of assessment and subsequent years of assessment in respect of the life fund of the insurer.

[Ins. Act 531:s.12]

(10B) Notwithstanding paragraph 75 of Schedule 3, any unabsorbed allowances of the life business shall only be available for deduction against the adjusted income for the basis period for a year of assessment and subsequent years of assessment in respect of the life fund of the insurer.

[Ins. Act 531:s.12]

(10C) Allowances under Schedule 3 shall only be available for deduction against the adjusted income of the life fund and the balance of such allowances shall not be available as a deduction against the adjusted income of the shareholders' fund.

[Ins. Act 531:s.12]

(11) In this section, sections 60A and 60B-

[Subs. Act 578:s.13]

"general business" means all insurance business which is not life business;

"general policy" means a policy other than a life policy;

"insurer" means a person who carries on insurance business and includes a professional re-insurer;

"investments" includes any accretions thereto;

"inward re-insurance" means any reinsurance of a risk under a policy where the risk is outside Malaysia and the original insurance policy-

(a)

is issued by an insurer not resident in Malaysia but not issued by a branch in Malaysia of such insurer; or

(b)

is issued by a branch outside Malaysia of an insurer resident in Malaysia,

and where any risk is in transit in Malaysia it shall be deemed to be outside Malaysia;

"inward re-insurance contract" means a Malaysian policy in respect of inward re-insurance;

"life business" has the same meaning assigned thereto under section 2 of the Insurance Act 1996 [Act 553];

"life policy" has the same meaning assigned thereto under section 2 of the Insurance Act 1996;

"Malaysian life fund" means the fund established pursuant to section 38 of the Insurance Act 1996;

"Malaysian policy" has the same meaning assigned thereto under section 2 of the Insurance Act 1996;

"offshore insurance" means insurance of a risk under a general policy where the risk is outside Malaysia and the insurance policy is issued by an insurer resident in Malaysia or by a branch in Malaysia of an insurer not resident in Malaysia, and where any risk is in transit in Malaysia it shall be deemed to be outside Malaysia;

[Ins. Act 264:s.8]

"offshore insurance policies" means policies issued in respect of offshore insurance;

[Ins. Act 264:s.8]

"policy" has the same meaning assigned thereto under section 2 of the Insurance Act 1996.

"premium" has the same meaning assigned thereto under section 2 of the Insurance Act 1996;

"re-insurance" has the same meaning assigned thereto under section 2 of the Insurance Act 1996;

"revenue account" means the revenue account lodged in respect of life business under section 87 of the Insurance Act 1996.

[Subs. Act 578:s.13]

Related reading:
[Act 531:s.12; Act 578:s.13; Act 608:s.14; Act 328; Act 471:s.9; Act 264:s.8; Act 591:s.8; Act 544:s.10]