Tax benefitsTax benefits

Tax benefits

1. Recognition is able to be made for future shareholder tax benefits arising from losses occurring within the Insurance Risk Charge and Asset Risk Charge of a fund. A private health insurer may reduce the prescribed capital amount by the aggregate amount of any tax benefits that can be netted against deferred tax liabilities as specified in HPS 112.
2. The tax benefits from the Asset Risk Charge are the tax benefits resulting from scenarios modelled by the stress tests in HPS 114, reduced to allow for the reduction in Asset Risk Charge due to the asset risk aggregation formula. The tax benefits are therefore calculated as:

tax benefits times aggregated risk charge component divided by sum of risk charge component

1. The tax benefits from the Insurance Risk Charge are the tax benefits resulting from losses in the Insurance Risk Charge in HPS 115.
2. Overall tax benefits are to be reduced to allow for aggregation between the Asset Risk Charge and Insurance Risk Charge. Tax benefit aggregation reduction is calculated as:

Tax benefit aggregation reduction equals open bracket TA plus TI close bracket, minus the root of: TA squared plus TI squared plus two times the correlation of TA and TI

where:

1. ‘TA’ is the tax benefits from Asset Risk Charge in Paragraph 36;

2. ‘TI’ is the tax benefits from Insurance Risk Charge in Paragraph 37; and

3. ‘correlation’ is 20 per cent.

4. Tax benefits must only be recognised as a deduction from the prescribed capital amount if tax legislation allows them to be absorbed by the existing deferred tax liabilities. For this purpose, the deferred tax liabilities are those liabilities (if any) that remain after netting off the deferred tax assets and liabilities in the calculation of the deductions from Common Equity Tier 1 Capital in HPS 112.