• Insurance and reinsurance

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    This part of question 4 asks you to provide details of your expenses incurred and revenue earned in relation to your insurance and reinsurance contracts with related parties located in any of the specified countries during the income year.

    Insurance is a means by which an entity can protect itself with an insurance company against the risk of loss. Commonly insurance is categorised into general insurance, life insurance and health insurance.

    Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Therefore, the question relating to reinsurance is applicable only to insurance companies.

    The amounts reported for this question should include the expenditure and revenue that would qualify as expenditure/revenue in relation to insurance/reinsurance contracts under relevant Australian accounting standards or comparable foreign accounting standards (eg premium revenue, claim recoveries, commissions received from reinsurers, etc). At the time of this publication, the three key Australian accounting standards relevant to the recognition of expenditure and revenue in relation to insurance/reinsurance include AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. As the dollar amounts in this question are based on your accounting records, you should include all of your reinsurance expenditure and revenue regardless of any election made under Division 15 of Part III of the ITAA 1936.

    If you engaged an intermediary (eg broker) in arranging your insurance or reinsurance contracts, even though an independent agent, the intermediary is considered to be acting on your behalf. Therefore, the transactions undertaken by the intermediary on your behalf should be included in the answer to this question where appropriate.

    To complete this question, you need to:

    • identify all your insurance and reinsurance contracts with related parties located in specified countries during the income year
    • group these contracts according to the specified country where the related party to the contract was located
    • total the dollar value of your insurance and reinsurance contracts (expenses plus revenue) for each specified country
    • then determine the three specified countries where you had the highest dollar value of insurance and reinsurance activities.

    In the first column at L, O and R, list the codes of the three specified countries with the highest dollar values of your insurance and reinsurance contracts with related parties located in these specified countries.

    List these codes in descending order of total dollar value.

    Further Information

    For the list of codes for specified countries, see Appendix 2.

    End of further information

    In the second column at M, P and S, provide the total amount of expenditure incurred in respect of your insurance and reinsurance contracts with related parties located in each of the specified countries listed in the first column.

    In the third column at N, Q and T, provide the total amount of revenue earned in respect of your insurance and reinsurance contracts with related parties located in each of the specified countries listed in the first column.

    If your insurance and reinsurance contracts with entities were confined to one or two of the specified countries, only list those countries.

    Example: Insurance business only

    As part of its risk management strategy, an Australian taxpayer insured its business against loss of:

    • key personnel
    • business assets
    • fleet of motor vehicles
    • legal claims against the business.
     

    When insuring the assets of the business, the taxpayer dealt directly with the insurance companies and entered into:

    • a property insurance contract in respect of its business assets (apart from motor vehicles) with insurance company, Asset Co
    • a motor vehicle insurance contract in respect of loss or damage to its fleet of vehicles with insurance company, Motor Co.
     

    In relation to insurance to cover key personnel and legal claims against the business, the taxpayer engaged a broker to assist in determining the best insurance. The broker on behalf of the taxpayer entered into:

    • life insurance contracts in relation to its key personnel of its business with two insurance companies, Life Co and Growth Co
    • liability insurance contracts in respect of any legal claims against the business with insurance companies, Legal Co and Writ Co.
     

    The Australian taxpayer extracts the relevant data from the information above.

    Entity

    Relation to taxpayer

    Country entity located

    Expenditure amounts

    Revenue amounts

    Total dollar value

    Asset Co

    100% subsidiary

    Australia

    6,000,000

    1,500,000

    7,500,000

    Motor Co

    100% subsidiary

    Monaco

    1,500,000

    50,000

    1,550,000

    Life Co

    100% subsidiary

    Bahamas

    7,900,000

    2,650,000

    10,550,000

    Growth Co

    100% subsidiary

    Bermuda

    5,600,000

    1,300,000

    6,900,000

    Legal Co

    100% subsidiary

    Cayman Islands

    5,500,000

    1,800,000

    7,300,000

    Writ Co

    na

    Cayman Islands

    4,900,000

    1,950,000

    6,850,000

    The three specified countries with the highest dollar value of dealings between the Australian taxpayer and related parties located in specified countries are Bahamas, Cayman Islands and Bermuda.

    With this information the Australian taxpayer completes question 4 as follows.

    Example of question 4 completed - insurance business only

    Note: In completing the International dealings schedule - financial services, the Australian taxpayer disregards the dealings, in relation to:

    • Asset Co because this insurance company was not located in a specified country
    • Writ Co because this insurance company was not related to the taxpayer.
     

    Example: Reinsurance business only

    As part of its risk management strategy, an Australian taxpayer conducting a business of insurance entered into certain reinsurance arrangements.

    The taxpayer engaged a reinsurance broker to arrange reinsurance on the following classes of its insurance business:

    • fire and industrial special risks
    • public liability
    • employers' liability.
     

    The taxpayer directly arranged reinsurance cover in respect of the following classes of its insurance business:

    • compulsory third party
    • house owners/householders
    • domestic motor vehicle.
     

    The taxpayer reinsured these classes of business with the following companies:

    • fire and industrial special risks reinsured with Cayman Co
    • public liability reinsured with Jersey Co
    • employers liability reinsured with Aus Co
    • compulsory third party reinsured with Cay Co
    • house owners/householders reinsured with Vanuatu Co
    • domestic motor vehicle reinsured with Belize Co.
     

    The Australian taxpayer extracts the relevant data from the information above.

    Entity

    Relation to taxpayer

    Country entity located

    Expenditure amounts

    Revenue amounts

    Total dollar value

    Cayman Co

    100% subsidiary

    Cayman Islands

    3,650,000

    5,950,000

    17,950,000

    Cay Co

    100% subsidiary

    Cayman Islands

    4,550,000

    3,800,000

    Jersey Co

    100% subsidiary

    Jersey

    7,650,000

    9,150,000

    16,800,000

    Aus Co

    100% subsidiary

    Australia

    7,500,000

    2,500,000

    10,000,000

    Vanuatu Co

    na

    Vanuatu

    2,350,000

    1,950,000

    4,300,000

    Belize Co

    100% subsidiary

    Belize

    1,800,000

    1,500,000

    3,300,000

    The three specified countries with the highest dollar value of dealings between the Australian taxpayer and entities located in specified countries are Cayman Islands, Jersey and Belize.

    With this information the Australian taxpayer completes question 4 as follows.

    Example of question 4 completed - reinsurance business only

    Note: In completing the International dealings schedule - financial services, the Australian taxpayer disregards the dealings, in relation to:

    • Aus Co because this reinsurance company was not located in a specified country
    • Vanuatu Co because this insurance company was not related to the taxpayer.
     

    Example: Insurance and reinsurance businesses

    In this scenario the Australian taxpayer conducts a business of insurance and undertook all the transactions as described in the above insurance business and reinsurance business examples.

    The Australian taxpayer extracts the relevant data from the information above.

    Country entity located

    Expenditure amounts

    Revenue amounts

    Total dollar amounts

    Bahamas

    7,900,000

    2,650,000

    10,550,000

    Belize

    1,800,000

    1,500,000

    3,300,000

    Bermuda

    5,600,000

    1,300,000

    6,900,000

    Cayman Islands

    13,700,000

    11,550,000

    25,250,000

    Jersey

    7,650,000

    9,150,000

    16,800,000

    Monaco

    1,500,000

    50,000

    1,550,000

    The three specified countries with the highest dollar value of dealings between the Australian taxpayer and entities located in specified countries are Cayman Islands, Jersey and Bahamas.

    With this information the Australian taxpayer completes question 4 as follows.

    Example of question 4 completed - insurance and reinsurance business

    In completing question 4, the Australian taxpayer disregards the same dealings as detailed in the previous examples.

    Last modified: 09 Nov 2011QC 24292