Tax issues

[Wduwdu1]

There are the following kinds of taxes for life insurance companies:

1.Corporate Income Tax

2.Premium Tax

3.DAC Tax

4.Investment Income Tax

Question: Does item 1 above overlap with items 2 to 4 above please?

This is like our personal income - we get tax deduction automatically before we get our salary every time, and we pay sales and service tax again when we buy goods. So can I say that after a life insurance company pays taxes listed in items 2 t o4 above, if that life insurance company still has profit, it has to pay "Corporate Income Tax" after it had paid taxes listed in items 2 t o4 above? or in other cases, if after a life insurance company pays taxes listed in items 2 t o4 above, and the life insurance company does not have profit, it then needs not to pay "Corporate Income Tax".

[JMO]

Please do us all a favor. Start one thread and put all your questions there. Thank you very much.

[mjb]

Originally Posted by Wduwdu1

There are the following kinds of taxes for life insurance companies:

1.Corporate Income Tax

2.Premium Tax

3.DAC Tax

4.Investment Income Tax

Question: Does item 1 above overlap with items 2 to 4 above please?

This is like our personal income - we get tax deduction automatically before we get our salary every time, and we pay sales and service tax again when we buy goods. So can I say that after a life insurance company pays taxes listed in items 2 t o4 above, if that life insurance company still has profit, it has to pay "Corporate Income Tax" after it had paid taxes listed in items 2 t o4 above? or in other cases, if after a life insurance company pays taxes listed in items 2 t o4 above, and the life insurance company does not have profit, it then needs not to pay "Corporate Income Tax".

That's essentially correct. Items 2-4 are "expenses" that form pre-tax profits. Corporate income tax is then calculated on those profits.

I personally don't mind the questions. It would be easier for the OP to find someone at work to ask, but if they don't have someone available or are afraid of looking stupid, I don't mind answering a few. It's good that you are thinking about these things. Many new students just blindly do their work and don't bother to think about the details.

[Chuck]

I think if you are talking US taxes, the DAC tax is really not directly a tax. It is a (somewhat artificial) adjustment to taxable income that results in more of (1), ie more tax on profits. So in essence, 3 is part of 1.

[Abused Student]

Originally Posted by JMO

Please do us all a favor. Start one thread and put all your questions there. Thank you very much.

I was just debating reporting one of them and asking the mods to do us that favor.

[JMO]

Originally Posted by Chuck

I think if you are talking US taxes, the DAC tax is really not directly a tax. It is a (somewhat artificial) adjustment to taxable income that results in more of (1), ie more tax on profits. So in essence, 3 is part of 1.

I would say that premium tax is more analagous to sales tax.

The situation may be different in Canada, but in the US, sales tax is paid to the states, and "income tax" is just shorthand for Federal Income Tax. For personal income tax, you don't get a deduction for sales tax, but insurance companies can indeed deduct premium tax.

ETA - Premium tax differs from sales tax, because sales tax is added to the price quoted to the consumer. Premium tax is less transparent - the company takes it into account in setting the premium, but does not disclose it to the consumer. Most of them probably have never heard of premium taxes.

[FattyMcGee]

in my experience, we would have 1 and 4 together. that is, we wouldn't consider tax on investment profits separate from other underwriting profits. also, as the above post indicated, DAC Tax is not really a tax in itself, it is an adjustment to income. So there are really only two taxes:

1: premium tax (like sales tax)
2: profit tax (includes investment income profit and operations profit [which is not directly equal to cash flows due to adjustments like reserves and DAC Tax allowances])

hope this helps.

[Wduwdu1]

Originally Posted by FattyMcGee

in my experience, we would have 1 and 4 together. that is, we wouldn't consider tax on investment profits separate from other underwriting profits. also, as the above post indicated, DAC Tax is not really a tax in itself, it is an adjustment to income. So there are really only two taxes:

1: premium tax (like sales tax)
2: profit tax (includes investment income profit and operations profit [which is not directly equal to cash flows due to adjustments like reserves and DAC Tax allowances])

hope this helps.

That helps! Good points! Thanks!