Commonwealth Consolidated Acts Commonwealth Consolidated ActsPart 1 -- Life insurance companies and consolidation
Income Tax Assessment Act 1997
1 At the end of Division 713
Add:
Subdivision 713 - L -- Life insurance companies
713 - 500 What this Subdivision is about
This Subdivision sets out special rules for:
(a) a life insurance company that becomes, or ceases to be, a member of a consolidated group; and
(b) the head company of a consolidated group where a life insurance company is a subsidiary member of the group.
Table of sections
Operative provisions
713 - 505 Head company treated as a life insurance company
713 - 510 Certain subsidiaries of life insurance companies cannot be members of consolidated group
713 - 515 Modification of cost setting rules
713 - 520 Valuing certain liabilities
713 - 525 Obligation to value virtual PST assets and segregated exempt assets
713 - 530 Certain amounts transferred to leaving entity
[This is the end of the Guide.]
713 - 505 Head company treated as a life insurance company
This Act, and the Income Tax Rates Act 1986 , apply to the * head company of a * consolidated group as if it were a * life insurance company for an income year if one or more life insurance companies are * subsidiary members of the group at any time during that year.
713 - 510 Certain subsidiaries of life insurance companies cannot be members of consolidated group
(1) An entity cannot be a * subsidiary member of the same * consolidated group or * consolidatable group of which a * life insurance company is a * member if:
(a) the life insurance company owns, either directly or indirectly, * membership interests in the entity; and
(b) either:
(i) some, but not all, of those membership interests are * virtual PST assets of the life insurance company; or
(ii) some, but not all, of those membership interests are * segregated exempt assets of the life insurance company.
Note: The entity could, however, be a member of another consolidated group or consolidatable group.
(2) An entity cannot continue to be a * subsidiary member of a * consolidated group if:
(a) a * life insurance company is a * member of the group; and
(b) the life insurance company owns, either directly or indirectly, * membership interests in the entity; and
(c) had the entity not been a subsidiary member of the group, either:
(i) some, but not all, of those membership interests would be * virtual PST assets of the life insurance company; or
(ii) some, but not all, of those membership interests would be * segregated exempt assets of the life insurance company.
713 - 515 Modification of cost setting rules
(1) If an entity that becomes a * subsidiary member of a * consolidated group at a time (the joining time ) is a * life insurance company, these assets are retained cost base assets :
(a) a * virtual PST asset, or a * segregated exempt asset, of the company; and
(b) another asset of the company that is held by the company for the purpose of discharging its liabilities under the * net investment component of ordinary life insurance policies (except policies that provide for * participating benefits or * discretionary benefits under * life insurance business carried on in Australia); and
(c) for a life insurance company that has demutualised under Division 9AA of Part III of the Income Tax Assessment Act 1936 where, in the period starting just after the company demutualises and ending at the joining time, all of the * membership interests in the company were owned by the same group--a goodwill asset of the company.
(2) If the * retained cost base asset is covered by paragraph ( 1)(a) or (b), its * tax cost setting amount is:
(a) for the purposes of working out the tax cost setting amounts for reset cost base assets (see section 705 - 35)--the asset's * transfer value just before the joining time; and
(b) for all other purposes--the asset's * terminating value.
(3) If the * retained cost base asset is covered by paragraph ( 1)(c), its * tax cost setting amount is the embedded value (see subsection 121AM(1) of the Income Tax Assessment Act 1936 ) on the applicable accounting day (see subsection 121AM(3) of that Act) of the * life insurance company concerned reduced by the net value of shareholders' assets held by the company on that day.
(4) The net investment component of ordinary life insurance policies is the component of * life insurance policies (except * exempt life insurance policies and * virtual PST life insurance policies) that:
(a) is the component in respect of the part of those policies that has not been reinsured under a * contract of reinsurance; and
(b) is not the * net risk component of those policies.
713 - 520 Valuing certain liabilities
(1) Despite section 705 - 70, if the joining entity mentioned in step 2 in the table in section 705 - 60 is a * life insurance company, the joining entity's liabilities mentioned in this section are to be valued as mentioned in this section.
(2) The value of the joining entity's * virtual PST liabilities (if any) is the amount worked out under section 320 - 190 at the joining time.
(3) The value of the joining entity's * exempt life insurance policy liabilities (if any) is the amount worked out under section 320 - 245 at the joining time.
(4) Subsection ( 5) applies to a liability of the joining entity if:
(a) the liability is under the * net risk component of a * life insurance policy; and
(b) the joining entity could deduct under section 320 - 80 an amount for the * risk component of claims paid under the policy had it not become a * member of the * consolidated group.
(5) The value of that liability is the * current termination value of the * net risk component of the * life insurance policy at the joining time (calculated by an * actuary).
(6) The value of the joining entity's liabilities under the * net investment component of ordinary life insurance policies is the amount worked out for those liabilities under subsection 320 - 190(2) as if those liabilities were * virtual PST liabilities.
713 - 525 Obligation to value virtual PST assets and segregated exempt assets
Division 320 has effect as if:
(a) the joining time when a * life insurance company becomes a * subsidiary member of a * consolidated group; and
(b) the time (the leaving time ) when a life insurance company ceases to be a subsidiary member of a consolidated group;
were a valuation time for the purposes of sections 320 - 175 and 320 - 230.
Note: This means that:
713 - 530 Certain amounts transferred to leaving entity
(1) This section operates if:
(a) a * life insurance company ceases to be a subsidiary member of a * consolidated group in an income year; and
(b) at the leaving time, no other member of the group is a life insurance company that has a * virtual PST; and
(c) either:
(i) at the leaving time, the * head company of the group has a * net capital loss from * virtual PST assets; or
(ii) the head company has an amount referred to in subsection 320 - 205(2) as a difference that it could not apply to reduce any * virtual PST component of the * complying superannuation class of the company's taxable income for the income year in which the leaving time occurred.
(2) The * net capital loss, or the difference, becomes that of the * life insurance company just after the leaving time.
[The next Division is Division 715.]
Part 2 -- Consequential amendments
Income Tax Assessment Act 1997
2 At the end of subsection 320 - 175(1)
Add:
Note: The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see section 713 - 525.
3 At the end of subsection 320 - 230(1)
Add:
Note: The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see section 713 - 525.
4 At the end of section 701 - 60
Add:
Note: The tax cost setting amount of certain assets of a life insurance company is worked out under Subdivision 713 - L.
5 At the end of section 703 - 20
Add:
Note: A subsidiary of a life insurance company cannot be a member of a consolidated group or consolidatable group in certain circumstances: see section 713 - 510.
6 At the end of subsection 705 - 25(5)
Add:
Note: There are some additional retained cost base assets for a joining entity that is a life insurance company: see Subdivision 713 - L. The tax cost setting amount for those assets is worked out under that Subdivision.
7 At the end of subsection 705 - 70(1)
Add:
Note: Certain liabilities of a life insurance company are worked out under Subdivision 713 - L: see section 713 - 520.
8 Subsection 995 - 1(1)
Insert:
"net investment component of ordinary life insurance policies" has the meaning given by subsection 713 - 515(4).
9 Subsection 995 - 1(1) (definition of retained cost base asset )
After "705 - 25(5)", insert "and 713 - 515(1)".
Part 3 -- Transitional provisions
Income Tax (Transitional Provisions) Act 1997
10 After Division 707
Insert:
Division 713 -- Rules for particular kinds of entities
Table of Subdivisions
713 - L Transitional relief for certain transactions relating to life insurance companies
Table of sections
713 - 500 Object of Subdivision
713 - 505 When this Subdivision applies (first case)
713 - 510 When this Subdivision applies (second case)
713 - 515 Entities must choose the relief
713 - 520 Conditions
713 - 525 Time of transfer
713 - 530 What the relief is
713 - 535 Subsequent consequences
713 - 540 Requirement to notify happening of new event
713 - 545 Discount capital gain in certain cases
713 - 500 Object of Subdivision
The object of this Subdivision is to give an opportunity to a group of entities that includes a life insurance company to rearrange the assets of the group for the purposes of one or more of them becoming members of a consolidated group in a way that does not attract any immediate taxation consequences.
713 - 505 When this Subdivision applies (first case)
(1) This Subdivision provides for a deferral of the taxation consequences that would occur because of an event (the deferral event ) happening involving an entity (the originating entity ) and another entity (the recipient entity ) if:
(a) the event occurs in connection with a life insurance company (the member life insurance company ) becoming a member of a consolidated group; and
(b) the relevant conditions in section 713 - 520 are met.
(2) If the originating entity is a company, the deferral event referred to in subsection ( 1) is a CGT event referred to in subsection ( 4) happening to a CGT asset (the original asset ) where, apart from this Subdivision, the happening of the event would have resulted in:
(a) an amount (other than a capital gain) being included in the originating entity's assessable income; or
(b) the originating entity making a capital gain.
(3) If the originating entity is a trust, the deferral event referred to in subsection ( 1) is a CGT event referred to in subsection ( 4) happening to a CGT asset (also the original asset ) where, apart from this Subdivision, the happening of the event would have resulted in:
(a) an amount (other than a capital gain) being included in the net income of the trust; or
(b) the trustee making a capital gain.
(4) The CGT events are:
(a) CGT events A1, B1, D1, D2, D3, E2, F1 and F2; and
(b) CGT event C2, but only if the CGT asset that ends is a unit in a unit trust that is replaced by an equivalent membership interest (the replacement interest ) in a company or in another trust.
713 - 510 When this Subdivision applies (second case)
(1) This Subdivision also provides for a deferral of the taxation consequences that would occur if:
(a) a life insurance company transfers an asset (also the original asset ) to its virtual PST or from its virtual PST where, apart from this Subdivision, section 320 - 200 of the Income Tax Assessment Act 1997 would apply to the transfer; or
(b) a life insurance company transfers an asset (also the original asset ) to its segregated exempt assets where, apart from this Subdivision, section 320 - 255 of the Income Tax Assessment Act 1997 would apply to the transfer;
where the transfer (also the deferral event ) is made in connection with the life insurance company (also the member life insurance company ) becoming a member of a consolidated group.
(2) The relevant conditions in section 713 - 520 must be met.
713 - 515 Entities must choose the relief
(1) This Subdivision applies only if the originating entity (for a section 713 - 505 case) or the life insurance company (for a section 713 - 510 case) chooses that it apply.
(2) The choice must be made:
(a) by the day the originating entity or the life insurance company, or the head company of the consolidated group of which it is a member, lodges its income tax return for the income year in which the deferral event happened; or
(b) within a further time allowed by the Commissioner.
(1) For a section 713 - 505 case:
(a) the originating entity must be:
(i) a life insurance company that has virtual PST assets or segregated exempt assets and that is a member of a consolidatable group; or
(ii) an entity that is unable to be a member of the same consolidatable group as a life insurance company because of section 713 - 510 of the Income Tax Assessment Act 1997 ; or
(iii) an entity that is, directly or indirectly, a subsidiary of a life insurance company and is a member of the same consolidated group as the life insurance company; and
(b) the originating entity and the recipient entity must be members of the same consolidatable group or consolidated group or, if they are not, they would have been apart from section 713 - 510 of the Income Tax Assessment Act 1997 ; and
(c) any asset transferred by the originating entity must be transferred to the recipient entity at its transfer value.
(2) For both a section 713 - 505 case and a section 713 - 510 case:
(a) the total transfer values of the virtual PST assets of the member life insurance company just before a transfer of assets to which this Subdivision applies must be the same as the total transfer values of those assets just after the transfer; and
(b) the total transfer values of the segregated exempt assets of the member life insurance company just before a transfer of assets to which this Subdivision applies must be the same as the total transfer values of those assets just after the transfer.
(3) Any transfer of an asset under the deferral event must happen on or before the later of:
(a) 30 June 2004; and
(b) if the head company of the consolidated group of which the member life insurance company is a member has a substituted accounting period--the end of the head company's income year in which 30 June 2004 occurs.
This Act, and the Income Tax Assessment Act 1997 , apply to the transfer of an asset to which this Subdivision applies as if the asset had been transferred just before the member life insurance company became a member of the consolidated group.
(1) For a section 713 - 505 case:
(a) if the originating entity is a company:
(i) any amount (other than a capital gain) that would have been included in the originating entity's assessable income (the deferred amount ) as a result of the deferral event is not so included; and
(ii) any capital gain (the deferred gain ) that the originating entity would have made as a result of the deferral event is disregarded; and
(b) if the originating entity is a trust:
(i) any amount (other than a capital gain) that would have been included in the member life insurance company's assessable income (also the deferred amount ) as a result of the deferral event is not so included; and
(ii) any capital gain (also the deferred gain ) that the member life insurance company would have made as a result of the deferral event is disregarded.
(2) For a section 713 - 510 case:
(a) any amount that would have been included in the member life insurance company's assessable income (also the deferred amount ) under paragraph 320 - 15(e) or (g) of the Income Tax Assessment Act 1997 as a result of the deferral event is not so included; and
(b) any capital gain (also the deferred gain ) that the member life insurance company would have made as a result of the deferral event is disregarded.
713 - 535 Subsequent consequences
(1) This section operates if, after the deferral event happens, another event (the new event ) happens where the new event is:
(a) a CGT event happening to:
(i) the original asset; or
(ii) if the deferral event was CGT event C2--the replacement asset; or
(b) the recipient entity ceasing to be a member of the consolidated group of which the member life insurance company is a member; or
(c) if the recipient entity is a life insurance company:
(i) the original asset being transferred to or from the company's virtual PST under section 320 - 180, 320 - 185 or 320 - 195 of the Income Tax Assessment Act 1997 ; or
(ii) the original asset being transferred to or from the company's segregated exempt assets under section 320 - 235, 320 - 240 or 320 - 250 of that Act; or
(d) if the originating entity is a company--the originating entity ceasing to exist.
(2) For a section 713 - 505 case where the originating entity is a company:
(a) the originating entity must include the deferred amount in its assessable income for the income year in which the new event happens; or
(b) the originating entity is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.
Note: If the originating entity is a subsidiary member of a consolidated group, the head company of the group will have the amount included in its assessable income or will make the capital gain.
(3) For a section 713 - 505 case where the originating entity is a trust:
(a) the member life insurance company must include the deferred amount in its assessable income for the income year in which the new event happens; or
(b) the member life insurance company is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.
(4) For a section 713 - 505 case where the originating entity is a life insurance company or a trust and the deferred amount or the deferred gain relates to an asset that was a virtual PST asset at the time when the deferral event happened, an amount equal to the deferred amount or deferred gain is taken to be an amount of assessable income to which subsection 320 - 205(3) of the Income Tax Assessment Act 1997 applies for the relevant entity.
(5) For a section 713 - 510 case:
(a) the member life insurance company must include the deferred amount in its assessable income for the income year in which the new event happens; or
(b) the member life insurance company is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.
(6) In addition, if the deferral event involved the transfer of assets from the member life insurance company's virtual PST, an amount equal to the deferred amount or deferred gain is taken to be an amount of assessable income to which subsection 320 - 205(3) of the Income Tax Assessment Act 1997 applies for the relevant entity.
713 - 540 Requirement to notify happening of new event
(1) For a section 713 - 505 case, the recipient entity must, if it is not a member of the same consolidated group as the originating entity when the new event happens, notify the originating entity in the approved form of the happening of the new event within 60 days after the new event happens.
(2) Subsection ( 1) does not apply if the new event is the originating entity ceasing to exist.
713 - 545 Discount capital gain in certain cases
The Income Tax Assessment Act 1997 applies as if the capital gain referred to in paragraph 713 - 535(2)(b), (3)(b) or (5)(b) were a discount capital gain if:
(a) the asset to which the deferral event happened is a virtual PST asset; and
(b) the asset was acquired less than 12 months before the deferral event happened; and
(c) the new event happens at least 12 months after the asset was acquired.
Taxation Administration Act 1953
11 At the end of section 286 - 75 of Schedule 1
Add:
(4) You are also liable to an administrative penalty if:
(a) you are required under section 713 - 540 of the Income Tax (Transitional Provisions) Act 1997 to notify another entity of the happening of an event by a particular day; and
(b) you do not notify the other entity of the happening of that event by that day.
12 At the end of subsection 286 - 80(2) of Schedule 1
Add:
; or (c) for failing to notify the happening of an event as mentioned in subsection 286 - 75(4)--1 penalty unit for each period of 28 days or part of a period of 28 days starting on the day when the notification is due and ending when you notify the happening of the event (up to a maximum of 5 penalty units).