Commonwealth Consolidated Acts

TAX LAWS AMENDMENT (2004 MEASURES NO. 6) ACT 2005 - SCHEDULE 12

Income Tax Assessment Act 1997

1   After section   138 - 20

Insert:

138 - 25   Transfers of life insurance business

    For the purposes of applying this Division, if the trigger event happens because all or part of the * life insurance business of a * life insurance company (the originating company ) is transferred to another life insurance company (the recipient company ):

  (a)   in accordance with a scheme confirmed by the Federal Court of Australia under Part   9 of the Life Insurance Act 1995 ; or

  (b)   under the Financial Sector (Transfers of Business) Act 1999 ;

an amount equal to the * market value of any liabilities assumed by the recipient company in respect of the transfer is taken to be money received by the originating company in respect of the transfer (except to the extent that the amount is otherwise taken into account as * capital proceeds in respect of the transfer).

2   At the end of subsection 320 - 30(1)

Add:

Note:   The effect of this section is modified when the life insurance business of a life insurance company is transferred to another life insurance company: see section   320 - 340.

3   At the end of subsection 320 - 37(1)

Add:

Note:   The effect of this section is modified when the life insurance business of a life insurance company is transferred to another life insurance company: see section   320 - 325.

4   At the end of subsection 320 - 40(1)

Add:

Note:   The effect of this section is modified when the life insurance business of a life insurance company is transferred to another life insurance company: see section   320 - 345.

5   At the end of Division   320

Add:

Subdivision   320 - I -- Transfers of business

Guide to Subdivision   320 - I

320 - 300   What this Subdivision is about

This Subdivision contains special rules that apply when all or part of the life insurance business of a life insurance company is transferred to another life insurance company under the Life Insurance Act 1995 or the Financial Sector (Transfers of Business) Act 1999 .

Table of sections

Operative provisions

320 - 305   When this Subdivision applies

320 - 310   Special deductions and amounts of assessable income

320 - 315   Virtual PST and segregated exempt assets

320 - 320   Certain amounts treated as life insurance premiums

320 - 325   Friendly societies

320 - 330   Immediate annuities

320 - 335   Parts of assets treated as separate assets

320 - 340   Continuous disability policies

320 - 345   Exemption of management fees

Operative provisions

320 - 305   When this Subdivision applies

    The rules in this Subdivision have effect if all or part of the * life insurance business of a * life insurance company (the originating company ) is transferred to another life insurance company (the recipient company ):

  (a)   in accordance with a scheme confirmed by the Federal Court of Australia under Part   9 of the Life Insurance Act 1995 ; or

  (b)   under the Financial Sector (Transfers of Business) Act 1999 .

320 - 310   Special deductions and amounts of assessable income

Deduction for originating company

  (1)   If the originating company pays an amount to the recipient company in respect of liabilities under the * net risk components of * life insurance policies transferred to the recipient company, the originating company can deduct that amount for the income year in which the transfer took place.

Amount included in originating company's assessable income

  (2)   If the originating company receives an amount from the recipient company in respect of liabilities under the * net risk components of * life insurance policies transferred to the recipient company, that amount is included in the assessable income of the originating company for the income year in which the transfer took place.

Deduction for recipient company

  (3)   If the recipient company pays an amount to the originating company in respect of liabilities under the * net risk components of * life insurance policies transferred to the recipient company, the recipient company can deduct that amount for the income year in which the transfer took place.

320 - 315   Virtual PST and segregated exempt assets

  (1)   Assets that were * virtual PST assets of the originating company just before the transfer took place and that are transferred to the recipient company become virtual PST assets of the recipient company.

  (2)   Assets that were * segregated exempt assets of the originating company just before the transfer took place and that are transferred to the recipient company become segregated exempt assets of the recipient company.

320 - 320   Certain amounts treated as life insurance premiums

  (1)   This Division applies to the recipient company as if the amount or value of any consideration received by the recipient company in respect of liabilities under * life insurance policies transferred to the company were * life insurance premiums paid to the company at the time the transfer took place.

  (2)   However, subsection   (1) does not apply to consideration:

  (a)   that relates to liabilities that, just before the transfer took place, were discharged out of the originating company's * virtual PST assets or * segregated exempt assets; or

  (b)   that relates to the part of a * life insurance policy that has been reinsured under a * contract of reinsurance (except consideration that relates to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies).

320 - 325   Friendly societies

  (1)   This section has effect if the originating company and the recipient company were * friendly societies just before the transfer took place.

  (2)   For the purposes of paragraph 320 - 37(1)(d), an * income bond, * funeral policy, * sickness policy or * scholarship plan issued by the recipient company in substitution for an income bond, funeral policy, sickness policy or scholarship plan (the original policy ) transferred from the originating company is taken to have been issued at the time the original policy was issued if the terms of the substituted policy are not materially different from those of the original policy.

320 - 330   Immediate annuities

    For the purposes of section   320 - 246, a * life insurance policy that provides for an * immediate annuity issued by the recipient company in substitution for a policy (also the original policy ) transferred from the originating company is taken to have been issued at the time the original policy was issued if the terms of the substituted policy are not materially different from those of the original policy.

320 - 335   Parts of assets treated as separate assets

    If:

  (a)   an asset is transferred to the recipient company from the originating company; and

  (b)   parts of that asset were, under section   320 - 170 or 320 - 225 of the Income Tax (Transitional Provisions) Act 1997 , treated as separate assets of the originating company just before the transfer took place;

those parts of that asset are also treated as separate assets of the recipient company.

320 - 340   Continuous disability policies

  (1)   This section has effect if:

  (a)   the originating company and the recipient company were members of the same * wholly - owned group just before the transfer took place; and

  (b)   all of the liabilities under the * continuous disability policies of the originating company are transferred to the recipient company; and

  (c)   the transfer took place before the income year in which 1   July 2005 occurs; and

  (d)   an amount (the section   320 - 30 amount ) would have been included in the assessable income of the originating company under section   320 - 30 for the income year in which the transfer took place if the transfer had not taken place.

  (2)   Section   320 - 30 does not apply to the originating company for the income year in which the transfer took place or a later income year.

  (3)   The amount worked out using this formula is included in the assessable income of the originating company for the income year in which the transfer took place:

where:

"continuous disability policy days" means the number of days during the income year in which the transfer took place that the originating company held * continuous disability policies.

  (4)   The section   320 - 30 amount, reduced by the amount included in the assessable income of the originating company under subsection   (3), is included in the assessable income of the recipient company for the income year in which the transfer took place.

  (5)   For each income year after the year in which the transfer took place and that is a relevant income year for the purposes of section   320 - 30, the recipient company's assessable income includes the amount that would have been included in the originating company's assessable income under that section for that year if the transfer had not taken place.

320 - 345   Exemption of management fees

  (1)   This section has effect if:

  (a)   the originating company and the recipient company were members of the same * wholly - owned group just before the transfer took place; and

  (b)   a * life insurance policy (also the original policy ):

  (i)   is constituted by a contract made with the originating company before 1   July 2000; and

  (ii)   is transferred to the recipient company before 1   July 2005.

  (2)   For the purposes of section   320 - 40, a * life insurance policy issued by the recipient company in substitution for the original policy is taken to have been constituted by a contract made with the recipient company before 1   July 2000 if the terms of the substituted policy are not materially different from those of the original policy.

  (3)   Subsection 320 - 40(4) applies to so much of the sum of the amounts applicable in respect of the substituted policy under subsections 320 - 40(5), (6) and (7) as does not exceed any fees or charges made by the recipient company that the originating company would have been entitled to make under the terms of the original policy as applying just before 1   July 2000.

6   Subsection 995 - 1(1) (at the end of the definition of life insurance premium )

Add:

Note:   Certain other amounts are treated as life insurance premiums when the life insurance business of a life insurance company is transferred to another life insurance company: see section   320 - 320.

Income Tax (Transitional Provisions) Act 1997

7   Division   126 (heading)

Repeal the heading, substitute:

Division   126 -- Roll - overs

Subdivision   126 - A -- Merger of qualifying superannuation funds

8   At the end of Division   126

Add:

Subdivision   126 - B -- Transfer of life insurance business

Table of sections

126 - 150   Roll - over on transfer of life insurance business

126 - 155   When there is a roll - over

126 - 160   Effects of roll - over

126 - 165   References to Subdivision   126 - B of the Income Tax Assessment Act 1997

126 - 150   Roll - over on transfer of life insurance business

  (1)   There may be a roll - over if:

  (a)   a CGT event happens because all or part of the life insurance business of a life insurance company (the originating company ) is transferred to another life insurance company (the recipient company ):

  (i)   in accordance with a scheme confirmed by the Federal Court of Australia under Part   9 of the Life Insurance Act 1995 ; or

  (ii)   under the Financial Sector (Transfers of Business) Act 1999 ; and

  (b)   the originating company and the recipient company were members of the same wholly - owned group just before the transfer; and

  (c)   one of these happens:

  (i)   a CGT asset (the original asset ) of the originating company becomes an asset of the recipient company; or

  (ii)   a CGT asset of the originating company ends and the recipient company acquires an equivalent replacement asset; or

  (iii)   the originating company creates a CGT asset in the recipient company; and

  (d)   the transfer takes place:

  (i)   before 30   June 2004; or

  (ii)   if the originating company and the recipient company are members of the same consolidated group or consolidatable group and the head company of that group has a substituted accounting period--before the end of the head company's income year in which 30   June 2004 occurs.

  (2)   The CGT asset involved (the roll - over asset ) must not be trading stock of the recipient company just after the time of the transfer.

  (3)   If:

  (a)   the roll - over asset is a right or convertible note referred to in Division   130, or an option referred to in Division   134, of the Income Tax Assessment Act 1997 ; and

  (b)   the recipient company acquires another CGT asset by exercising the right or option or by converting the convertible note;

the other asset cannot become trading stock of the recipient company just after the recipient company acquired it.

126 - 155   When there is a roll - over

  (1)   There is a roll - over if:

  (a)   either:

  (i)   the CGT event would have resulted in the originating company making a capital gain, or making no capital loss and not being entitled to a deduction; or

  (ii)   the originating company acquired the roll - over asset before 20   September 1985; and

  (b)   the originating company and recipient company both choose in writing to obtain a roll - over.

  (2)   There is also a roll - over if the CGT event would have resulted in the originating company making a capital loss and the originating company and recipient company both choose in writing to obtain a roll - over.

  (3)   Any such choice must be made by the later of:

  (a)   12 months after the day on which the Tax Laws Amendment (2004 Measures No. 6) Act 2005 received the Royal Assent; and

  (b)   a later day allowed by the Commissioner.

126 - 160   Effects of roll - over

  (1)   A capital gain or capital loss the originating company makes from the CGT event is disregarded.

  (2)   The first element of the cost base of the original asset or the replacement asset for the recipient company is the cost base of the original asset for the originating company just before the time of the CGT event.

  (3)   The first element of the reduced cost base of the original asset or the replacement asset for the recipient company is worked out similarly.

  (4)   For a case where the originating company creates a CGT asset in the recipient company, the first element of the asset's cost base (in the hands of the recipient company) is the amount applicable under this table. The first element of its reduced cost base is worked out similarly.

    The expenditure can include giving property: see section   103 - 5 of the Income Tax Assessment Act 1997 .

  (5)   If the originating company acquired the original asset before 20   September 1985, the recipient company is taken to have acquired the original asset or the replacement asset before that day.

126 - 165   References to Subdivision   126 - B of the Income Tax Assessment Act 1997

    A reference in an Act to a roll - over under Subdivision   126 - B of the Income Tax Assessment Act 1997 includes a reference to a roll - over under this Subdivision.

Example:   Examples of the operation of this provision include:

(a)   CGT event J1 may happen if the recipient company stops being a 100% subsidiary of a member of a company group after a roll - over under this Subdivision; and

(b)   a tax cost setting amount may be affected under section   705 - 50 because of a roll - over under this Subdivision; and

(c)   an allocable cost amount may be affected under section   705 - 150 because of a roll - over under this Subdivision.

9   Subsection 126 - 150(3)

Repeal the subsection, substitute:

  (3)   If:

  (a)   the roll - over asset is a right or convertible interest referred to in Division   130, or an option referred to in Division   134, of the Income Tax Assessment Act 1997 or an exchangeable interest; and

  (b)   the recipient company acquires another CGT asset by exercising the right or option or by converting the convertible interest or in exchange for the disposal or redemption of the exchangeable interest;

the other asset cannot become trading stock of the recipient company just after the recipient company acquired it.

10   At the end of Division   170

Add:

Subdivision   170 - D -- Transfer of life insurance business

170 - 300   Transfer of life insurance business

    If:

  (a)   all or part of the life insurance business of a life insurance company (the originating company ) is transferred to another life insurance company (the recipient company ):

  (i)   in accordance with a scheme confirmed by the Federal Court of Australia under Part   9 of the Life Insurance Act 1995 ; or

  (ii)   under the Financial Sector (Transfers of Business) Act 1999 ; and

  (b)   the originating company makes a capital loss from a CGT asset as a result of the transfer; and

  (c)   that capital loss is disregarded because of Subdivision   126 - B of this Act;

Subdivision   170 - C of the Income Tax Assessment Act 1997 has effect as if:

  (d)   that capital loss were a net capital loss transferred by the originating company to the recipient company by an agreement under section   170 - 150 of that Act; and

  (e)   the application year referred to in section   170 - 225 of that Act were the year in which the transfer of life insurance business took place.

11   Application

(1)   The amendments made by this Schedule (except the amendment made by item   9) apply to transfers of life insurance business that take place on or after 1   July 2000.

(2)   The amendment made by item   9 of this Schedule applies to the conversion of a convertible interest, or the disposal or redemption of an exchangeable interest, on or after 1   July 2001.

Notes to the Tax Laws Amendment (2004 Measures No. 6) Act 2005

Note 1

The Tax Laws Amendment (2004 Measures No.   6) Act 2005 as shown in this compilation comprises Act No.   23, 2005 amended as indicated in the Tables below.

Table of Acts

Table of Amendments