Substitution of a qualifying policy: within ten years of the old policy being made: whether new policy qualifies
If both the old policy and the new policy issued in substitution meet the basicqualifying policy tests but the new policy takes effect within ten years of the old policybeing made then the premiums payable have to be compared to determine whether the newpolicy qualifies. This is the test in ICTA88/SCH15/PARA17 (2)(b).
Premium comparison test
Step 1: Calculate the highest premium payable under the
new policyfor any period of 12 months within ten years of the date that the old policy was made. Indoing this calculation, any premiums of the new policy relating to the transfer of valuefrom the old policy are included.
Step 2: Calculate the highest premium paid for any period of 12 monthsunder the old policy, including under any related policies as describedbelow.
The new policy then qualifies if the amount given by step 1 is not less than half of theamount given by step 2.
There is no upper limit on the premiums payable on the new policy, solong as the policy meets the basic qualifying policy tests.
If there has been one or more previous substitutions in the ten years before the newpolicy is made, step 2 of the premium comparison test extends to all previous old policiesthat were made in that period, not just the most recent policy. These policies are knownas related policies.
For instance, suppose a new policy was made in 2005 on a substitution and earlier relatedpolicies were made in 1999, 1996 and 1994. Then the premium comparison test only appliesto premiums paid on the policies made from 1996 onwards. Premiums paid on the relatedpolicy made in 1994 do not count for the test as this policy was made more than ten yearsbefore.
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