Advantage General Insurance Company Limited v The Commissioner of Taxpayer Appeals

For tax purposes, a retrospective revaluation of an insurer’s reserves may constitute a change in accounting policy where it adopts a materially different basis of presentation and produces a more appropriate or fairer presentation under the applicable accounting standards. The absence of retrospective effect in the Insurance Act 2001 does not prevent that conclusion. Whether reserves are reasonable under the Income Tax Act is reviewable on appeal. A statutory time-limit on assessments for one year does not prevent correction of an error affecting a timely assessment for a later year. A loss may be carried forward where it has not previously been set against income.

The appellant, a Jamaican general insurer, revalued its reserves after the Insurance Act 2001 introduced actuarial requirements. It restated its 2000 financial statements and claimed the resulting loss against later profits, including its 2003 tax liability.

The Commissioner disallowed the loss brought forward and issued an assessment for 2003. The Acting Commissioner of the Taxpayer Appeals Department, the Revenue Court and the Court of Appeal of Jamaica decided against the company. The Privy Council considered whether the Insurance Act had retrospective effect, whether the revaluation was a change in accounting policy or merely an accounting estimate, whether the loss was allowable and whether the assessment was time-barred.

The appeal was allowed. Lord Carnwath delivered the majority advice, with Lord Mance, Lord Clarke and Lord Hodge agreeing. Lord Sumption agreed with the result but dissented from the majority’s conclusion on accounting policy.

1. The Insurance Act 2001, including its actuarial requirements, was not retrospective. Neither the Act nor regulations made under it required the company to restate its 2000 accounts. Any such requirement had to arise from the applicable accounting standards.
2. Under section 72(4) of the Income Tax Act, the Commissioner could not make an assessment outside the statutory period for a particular year. That provision did not prevent the correction of an alleged error relating to that year where the correction was relevant to a timely assessment for a later year. The Board agreed with the courts below and applied the reasoning in Leola Purdy & Sons Ltd v The Queen [2009] TCC 21.
3. The requirement in section 48(2A)(c) that insurance reserves be accepted as reasonable did not make reasonableness solely a matter for the Commissioner’s judgment. His decision was reviewable on appeal, and the company could rely on accounting standards to establish reasonableness.
4. On the majority view, the revaluation was a change in accounting policy under the 1995 IAS8. The definition of accounting policy was sufficiently wide to include a change in the company’s practices for presenting its financial statements. The scale of the revaluation, the actuarial methodology, the policy reasons later embodied in statute and the resulting fairer presentation supported that conclusion. The Board cautioned that, because the accounting standards were obscure and no expert evidence had been called, its view was not determinative for other cases.
5. Alternatively, the Board considered that the company would succeed on the loss carry-forward issue. Section 48(2) required a comparison of reserves at the beginning and end of the year. It made no practical difference whether the loss was allocated to 2000 or 2001 for the purpose of the 2003 assessment. Section 13(1)(h) imposed no relevant restriction beyond preventing use of the loss against income in a previous year.
6. Lord Sumption considered that the accounting policy had remained unchanged and that the actuaries had merely applied it more skilfully and independently. He would therefore have allowed the appeal only on the loss carry-forward ground.

The Board advised Her Majesty that the appeal should be allowed. The parties were invited to make submissions on the form of order and consequential matters within 28 days.

• Privy Council: appeal allowed; advice given that the appeal should be allowed.
• Court of Appeal of Jamaica: appeal dismissed in a judgment delivered on 7 February 2014 by Brooks JA, with Panton P and McIntosh JA agreeing.
• Revenue Court: appeal decided against the company on the accounting classification and statutory time-limit issues.
• Taxpayer Appeals Department: the Acting Commissioner affirmed the assessment on 20 July 2009.