• Life insurance companies

    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

    The core rules for the foreign income tax offset apply to life insurance companies. However, as the income of a life insurance company is taxed at two different rates (ordinary class, taxed at 30%; and complying superannuation/FHSA class, taxed at 15%) it is necessary to determine the amount of assessable income in each class on which foreign income tax has been paid at step 2 of the foreign income tax offset limit calculation.

    Example

    Life Insurance Co derives the following assessable income in each class of income:

    Income Class

    Assessable Income (includes income subject to Foreign Income Tax)

    Assessable Income subject to Foreign Income tax

    Foreign Income Tax Paid

    Ordinary

    $5 million

    $1 million

    $200,000

    Complying superannuation/FHSA

    $5 million

    $2 million

    $400,000

    Assuming there are no allowable deductions in relation to the classes of assessable income, the foreign income tax offset limit is worked out as follows:

    Step 1: Work out the tax payable on Life Insurance Co's taxable income

    Tax on assessable income in the:

    • Ordinary Class: $5 million x 30% = $1.5 million
    • Complying superannuation/FHSA Class: $5 million x 15% = $750,000
     

    Total tax payable for step 1 is $2.25 million.

    Step 2:Work out the tax that would be payable if the income of the two classes on which foreign income tax has been paid is not included in Life Insurance Co's assessable income

    There are two income amounts on which foreign income tax has been paid that need to be excluded from assessable income for the purposes of this step:

    • $1 million that belongs to the assessable income in the ordinary class; and
    • $2 million that belongs to the assessable income in the complying superannuation/FHSA class.
     

    In working out the tax that would have been payable had these amounts not been included in assessable income, it is necessary to identify the relevant class to which such amounts belong as follows:

    Tax on assessable income excluding the income amount on which foreign income tax has been paid:

    • Ordinary class: ($5 million - $1 million) x 30% = $1.2 million
    • Complying superannuation/FHSA class: ($5 million - $2 million) x 15% = $450,000
     

    Total tax that would be payable for step 2 is $1.65 million.

    Step 3:Determine the foreign income tax offset limit

    Step 1 less step 2: $2.25 million - $1.65 million = $600,000

    This is the foreign income tax offset limit.

    As the actual foreign income tax paid on the two income amounts is also $600,000, the foreign income tax offset of Life Insurance Co is $600,000.

    Foreign income tax paid on non-assessable non-exempt income derived from segregated exempt assets does not count towards a tax offset.

      Last modified: 28 Jun 2012QC 25661