New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)

Schedule 6   Consolidation: life insurance companies

Part 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

Guide to Subdivision 713-L

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.]

Operative provisions

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:

· the company must value its virtual PST assets under section 320-175 (with the consequences set out in section 320-180), and its segregated exempt assets under section 320-230 (with the consequences set out in section 320-235), as at the joining time; and

· the head company must value the life insurance company's virtual PST assets and its segregated exempt assets as at the leaving time.

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.]