South Africa: Treatment of direct, indirect operating expenses of insurers

Operating expenses of insurers in South Africa

Binding General Ruling (BGR) No. 30 has been issued to clarify the treatment of expenses of insurance companies, acceptable to the South African Revenue Service (SARS). BGR No. 30 thus applies for allocation of direct and indirect operating expenses within and between the funds that are required to be established by insurers.

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BGR No. 30 was issued to address the inconsistent treatment of expenses within and between the separate funds of an insurer, and has an effective date of 7 January 2016. The guidelines under BGR No. 30 provide the following.

Direct expenses

  • Direct expenses are allocated to the policyholder funds and the risk policy fund in a manner consistent with which the business is conducted. 
  • Direct expenses relating to shareholder activities can only be allocated to the corporate fund.

Indirect expenses

  • When indirect operating expenses are incurred to produce the excess assets that will be transferred from the policyholder / risk policy fund to the corporate funds, the associated costs are allocated to such policyholder or risk policy fund. 
  • If indirect operating expenses cannot be allocated to a specific fund: (1) an apportionment of the expenses must be made between the corporate fund and the other funds in aggregate, using the average value of liabilities for the policyholder funds and the risk policy fund and the average market value of assets for the corporate fund at the commencement and end of the year of assessment; (2) a further apportionment then occurs using the gross premiums received by the individual policyholder fund, company policyholder fund, untaxed policy holder fund, and risk policy fund; (3) the expense ratio is then used to determine the deductible portion of the indirect operating expenses in the individual policyholder and company policyholder funds; and (4) finally, the apportioned indirect operating expenses allocated to the corporate fund and risk policy fund are further apportioned according to the ratio of income (as defined) in the respective fund plus the taxable capital gain of that fund over total amounts received or accrued. Transfers from the policyholder funds at the end of the year of assessment are excluded from the income and amounts received or accrued in the above calculations.


  • Indirect operating expenses allocated under these rules must be treated as indirect expenses and subject to the expense relief.
  • Deductible expenses include expenses directly attributable to income in the individual and company policyholder funds. If expenses are directly attributable to assets that give rise to income in these funds, they can also be claimed (unless of a capital nature). Similarly, expenses attributable to assets that give rise to exempt income are not deductible, as are expenses directly attributable to exempt income in the untaxed policyholder fund.
  • The deduction of expenses in the corporate fund and risk policy fund are subject to the requirements of section 11 and section 23 of the Income Tax Act.
  • Expenses cannot be deducted in the corporate fund from inter-fund transfers if relating to corporate fund activities, since no expense is incurred in such a transfer.



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