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  • Demutualisation of insurance companies



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

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    If you hold a policy in an insurance company that is demutualising, you may be subject to capital gains tax. A company demutualises when it changes its membership interests to shares (for example, the NRMA).

    The insurance company may give you an option either to keep the share entitlement or to take cash by selling the shares under contract through an entity set up by the company. If you choose to keep the shares, you will not be subject to capital gains tax until you eventually sell them. Usually the company will advise you of your cost base for the shares you received.

    However, if a cash option is available and you take it, you need to include any capital gains in your tax return in the income year in which you entered into the contract to sell the shares, even though you may not receive the cash until a later income year.

    There are similar rules if you are a member of a non-insurance organisation which demutualises. The demutualising company will write out to all potential 'shareholders' and advise them of the cost base in each instance, sometimes referred to as the 'embedded value'. Even though you did not pay anything to acquire the shares, they have a value that is used for capital gains tax purposes.

    Last modified: 31 Aug 2010QC 16195