Taxation Laws Amendment Act (No. 4) 1995 (171 of 1995)

SCHEDULE 3 AMENDMENTS OF THE INCOME TAX ASSESSMENT ACT 1936 RELATING TO DEMUTUALISATION OF INSURANCE COMPANIES AND AFFILIATES

1. After Division 9 of Part III

Insert the following Division:

"Division 9AA-Demutualisation of insurance companies and affiliates

"Subdivision A-What this Division is about

"121AA. What this Division is about

Basically, if an insurance company demutualises and its policyholders or members dispose of their listed shares in the company, for tax purposes the acquisition cost of the shares is based on the lesser of:

(a) the embedded value or net tangible asset value of the company; and

(b) the value of the company based on the total first trading day price of all shares in the company.

Other tax consequences result from disposals of other interests and from other events in connection with the demutualisation.

"Subdivision B-Key concepts and related definitions

"121AB. Insurance company definitions

(1) A mutual insurance company is an insurance company:

(a) whose profits are divisible only among its policyholders; or

(b) that satisfies all of the following conditions:

(i) it is limited by guarantee;

(ii) it did not divide its profits among its members during the 10 years ending on 9 May 1995;

(iii) on a winding-up, its profits are not divisible among its members.

"(2) An insurance company is a life insurance company or a general insurance company.

"(3) A life insurance company is a company registered under the Life Insurance Act 1995.

"(4) A general insurance company is a company whose sole or principal business is insurance business within the meaning of subsection 3(1) of the Insurance Act 1973, but does not include a life insurance company.

"121AC. Mutual affiliate company

A mutual affiliate company is a company that satisfies the following conditions:

(a) it is limited by guarantee;

(b) it is not an insurance company;

(d) it did not divide its profits among its members during the 10 years ending on 9 May 1995;

(e) on a winding-up, its profits are not divisible among its members in their capacity as such.

"121AD. Demutualisation and demutualisation resolution day

(1) A mutual insurance company demutualises if it ceases to be a mutual insurance company:

(a) in any case-other than by ceasing to be an insurance company; or

(b) if it is a life insurance company-because the whole of its life insurance business is transferred to another company under a scheme confirmed by the Federal Court of Australia.

"(2) A mutual affiliate company demutualises if it ceases to be a mutual affiliate company other than by ceasing to be a company.

"(3) The demutualisation resolution day, in relation to the demutualisation of a company, is:

(a) if paragraph (b) does not apply-the day on which the resolution to proceed with the demutualisation is passed; or

(b) if paragraph (1)(b) applies to the demutualisation-the day on which the transfer of the whole of the company's life insurance business takes place.

Demutualisation methods, the policyholder/member group and the listing period

"121AE. Demutualisation methods 1 to 6

(1) There are 6 methods by which the demutualisation of a mutual insurance company, where a mutual affiliate company is not also demutualised, may be implemented that are relevant for the purposes of this Division. They are described in sections 121AF to 121AK as demutualisation methods 1 to 6.

Demutualisation method 7

"(2) There is one method by which the demutualisation of both a mutual insurance company and a mutual affiliate company may be implemented that is relevant for the purposes of this Division. It is described in section 121AL as demutualisation method 7. Demutualisation methods

"(3) Each of the methods described in sections 121AF to 121AL is a demutualisation method.

Policyholder/member group

"(4) The policyholder/member group, in relation to the demutualisation of a mutual insurance company under any of demutualisation methods 1 to 6, consists of the following persons:

(a) in the case of a mutual insurance company covered by paragraph 121AB(1)(a)-policyholders (other than trustees covered by paragraph (d) or (e)) in the company immediately before the demutualisation;

(b) in the case of any other mutual insurance company-members (other than trustees covered by paragraph (d) or (e)) of the company immediately before the demutualisation;

(c) in any case-any of the following who, in connection with the demutualisation, are entitled to the same rights to shares or the proceeds of the sale of shares as the policyholders (in a paragraph (a) case) or the members (in a paragraph (b) case):

(i) employees of the company or a wholly-owned subsidiary of the company;

(ii) persons who ceased to be such policyholders or members before the demutualisation;

(iii) charities;

(iv) persons who are entitled to the rights because of the death of the policyholders or members;

(d) in any case-each person who satisfies the following requirements:

(i) the person is a member of a regulated superannuation fund (as defined by section 19 of the Superannuation Industry (Supervision) Act 1993), other than a standard employer-sponsored member (as defined by subsection 16(5) of that Act);

(ii) the trustee of the fund holds a policy or policies in the mutual insurance company;

(iii) the trustee of the fund is a company that is a wholly-owned subsidiary of the mutual insurance company;

(iv) the person's benefits in the fund consist solely of the proceeds of the policy or policies;

(v) in connection with the demutualisation, the person, rather than the trustee, has the right to shares or the proceeds of the sale of shares in respect of the policy or policies held by the trustee;

(e) in any case-each person who satisfies the following requirements:

(i) the person is the member of a single-member superannuation fund;

(ii) the trustee of the fund holds a policy or policies in the mutual insurance company;

(iii) in connection with the demutualisation, the person, rather than the trustee, has the right to shares or the proceeds of the sale of shares in respect of the policy or policies held by the trustee.

"(5) The policyholder/member group, in relation to the demutualisation of a mutual insurance company and a mutual affiliate company under demutualisation method 7, consists of the following persons:

(a) if the mutual insurance company is covered by paragraph 121AB(1)(a)-policyholders (other than trustees covered by paragraph (e) or (f)) in the mutual insurance company immediately before the demutualisation;

(b) in the case of any other mutual insurance company-members (other than trustees covered by paragraph (e) or (f)) of the company immediately before the demutualisation;

(c) members (other than trustees covered by paragraph (e) or (f)) of the mutual affiliate company immediately before the demutualisation;

(d) any of the following who, in connection with the demutualisation, are entitled to the same rights to shares or the proceeds of the sale of shares as the members:

(i) employees of the mutual insurance company, the mutual affiliate company or a wholly-owned subsidiary of either company;

(ii) persons who ceased to be such members before the demutualisation;

(iii) charities;

(iv) persons who are entitled to the rights because of the death of members;

(e) in any case-each person who satisfies the following requirements:

(ii) the trustee of the fund holds a policy or policies in the mutual insurance company;

(iii) the trustee of the fund is a company that is a wholly-owned subsidiary of the mutual insurance company;

(iv) the person's benefits in the fund consist of the proceeds of the policy or policies;

(f) in any case-each person who satisfies the following requirements:

(i) the person is the member of a single-member superannuation fund;

(ii) the trustee of the fund holds a policy or policies in the mutual insurance company;

"(6) The listing period is the period ending 2 years after the demutualisation resolution day, or at such later time as the Commissioner, before the end of the 2 years, allows.

"121AEA. Replacement of policyholders by persons exercising certain rights

If, as a result of the exercise of any power under the articles of association of an insurance company, persons are entitled to exercise rights in place of policyholders, then, to the extent that the Commissioner considers it appropriate, the persons are treated for the purposes of this Division as replacing the policyholders.

"121AF. Demutualisation method 1

(1) Under demutualisation method 1, in connection with the implementation of the demutualisation:

(a) all membership rights in the mutual insurance company are extinguished; and

(b) shares (the ordinary shares) of only one class in the mutual insurance company are issued to each person in the policyholder/member group; and

Note: Other things may also happen in connection with the implementation of the demutualisation.

"(2) The following diagram shows, where this demutualisation method is used, the issue of the shares to the policyholder/member group.

Demutualisation method 1

(FLOW CHART OMITTED)

"121AG. Demutualisation method 2

(1) Under demutualisation method 2, in connection with the implementation of the demutualisation:

(a) all membership rights in the mutual insurance company are extinguished; and

(b) not more than 10 shares (the special shares) in the mutual insurance company are issued to a trustee to hold for the benefit of the policyholder/member group, where:

(i) the issue takes place before the issue of the ordinary shares mentioned in paragraph (c); and

(ii) on the issue of all the ordinary shares, the rights attaching to the special shares become the same as those attaching to the ordinary shares; and

(i) issued, at the election of each person in the policyholder/member group, to the person or to a trustee to sell on behalf of the person; or

(ii) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and

(d) the trustee sells the ordinary shares and distributes the proceeds to the person, or distributes the ordinary shares to the person; and

(e) the ordinary shares are listed within the listing period.

Note: Other things may also happen in connection with the implementation of the demutualisation.

"(2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(ii).

Demutualisation method 2

(FLOW CHART OMITTED)

"121AH. Demutualisation method 3

(1) Under demutualisation method 3, in connection with the implementation of the demutualisation:

(a) all membership rights in the mutual insurance company are extinguished; and

(b) shares in the mutual insurance company are issued to another company (the holding company); and

(i) the holding company; or

(ii) another company (the ultimate holding company) of which the holding company is a wholly-owned subsidiary, either directly or through one or more other wholly-owned subsidiaries (each of which is an interposed holding company);

are issued to each person in the policyholder/member group; and

(d) the ordinary shares are listed within the listing period.

Note: Other things may also happen in connection with the implementation of the demutualisation.

"(2) The following diagram shows the main events, where this demutualisation method is used.

Demutualisation method 3

(FLOW CHART OMITTED)

"121AI. Demutualisation method 4

(1) Under demutualisation method 4, in connection with the implementation of the demutualisation:

(a) all membership rights in the mutual insurance company are extinguished; and

(b) shares in the mutual insurance company are issued to another company (the holding company); and

(i) the holding company; or

are issued to a trustee to hold for the benefit of the policyholder/ member group; and

(d) the issue of the special shares takes place before the issue of the ordinary shares mentioned in paragraph (e), and on the issue of all the ordinary shares, the rights attaching to the special shares become the same as those attaching to the ordinary shares; and

(e) a greater number of shares (the ordinary shares) of only one class in the holding company or ultimate holding company are either:

(i) issued, at the election of each person in the policyholder/ member group, to the person or to a trustee to sell on behalf of the person; or

(ii) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and

(f) the trustee sells the ordinary shares and distributes the proceeds of sale to the person, or distributes the ordinary shares to the person; and

(g) the ordinary shares are listed within the listing period.

Note: Other things may also happen in connection with the implementation of the demutualisation.

"(2) The following diagram shows the main events, where this demutualisation method is used involving 2 trustees and an election covered by subparagraph (1)(e)(ii).

Demutualisation method 4

(FLOW CHART OMITTED)

"121AJ. Demutualisation method 5

(1) Under demutualisation method 5, in connection with the implementation of the demutualisation:

(a) all membership rights in the mutual insurance company are extinguished; and

(b) shares in the mutual insurance company are issued to another company (the holding company); and

(i) the holding company; or

are either:

(iii) issued, at the election of each person in the policyholder/ member group, to the person or to a trustee to sell on behalf of the person; or

(iv) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and

(d) the trustee sells the ordinary shares and distributes the proceeds of sale to the person, or distributes the ordinary shares to the person; and

(e) the ordinary shares are listed within the listing period.

Note: Other things may also happen in connection with the implementation of the demutualisation.

"(2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(iv).

Demutualisation method 5

(FLOW CHART OMITTED)

"121AK. Demutualisation method 6

(1) Under demutualisation method 6, in connection with the implementation of the demutualisation of a life insurance company:

(a) all membership rights in the company are extinguished; and

(b) the whole of the life insurance business of the company is, under a scheme confirmed by the Federal Court of Australia, transferred to another company formed for the purpose; and

(i) issued, at the election of each person in the policyholder/ member group, to the person or to a trustee to sell on behalf of the person; or

(ii) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and

(d) the trustee sells the ordinary shares and distributes the proceeds of sale to the person or distributes the ordinary shares to the person; and

(e) the ordinary shares are listed within the listing period.

Note: Other things may also happen in connection with the implementation of the demutualisation.

"(2) The following diagram shows the main events, where this demutualisation method is used.

Demutualisation method 6

(FLOW CHART OMITTED)

"121AL. Demutualisation method 7

(1) Under demutualisation method 7, in connection with the implementation of the demutualisation of both a mutual insurance company and a mutual affiliate company:

(a) all membership rights in both companies are extinguished; and

(b) shares in the mutual insurance company and the mutual affiliate company are issued to another company (the holding company); and

(i) the holding company; or

are either:

(iii) issued, at the election of each person in the policyholder/ member group to the person or to a trustee to sell on behalf of the person; or

(iv) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and

(d) the trustee sells the ordinary shares and distributes the proceeds of the sale to the person, or distributes the ordinary shares to the person; and

(e) the ordinary shares are listed within the listing period.

Note: Other things may also happen in connection with the implementation of the demutualisation.

"(2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(iv).

Demutualisation method 7

(FLOW CHART OMITTED)

"121AM. Embedded value of a mutual life insurance company

(1) The embedded value of a mutual life insurance company that demutualises using a demutualisation method is, in accordance with this section, the sum of its existing business value and its adjusted net worth on the applicable accounting day (see subsection (3)).

Eligible actuary and Australian actuarial practice

"(2) The sum is to be worked out by an eligible actuary (see subsection 121AO(3)) according to Australian actuarial practice.

Applicable accounting day

"(3) The applicable accounting day is:

(a) if an accounting period of the company ends on the demutualisation resolution day-that day; or

(b) in any other case-the last day of the most recent accounting period of the company ending before the demutualisation resolution day.

Adjustment for changes after applicable accounting day

"(4) In a case covered by paragraph (3)(b), if any significant change in the amount of the existing business value or adjusted net worth occurs between the applicable accounting day and the demutualisation resolution day, the amount is to be adjusted to take account of the change.

Continued business assumption

"(5) In working out the existing business value or the adjusted net worth, it is to be assumed:

(a) that after the applicable accounting day the company will continue to conduct its life insurance business and any other activity in the same way as it did before that day, and that it will not conduct any different business or other activity; and

(b) that the demutualisation will not occur.

Discount rate assumption

"(6) In working out the existing business value or adjusted net worth, the annual discount rate to be used in respect of each future accounting period is worked out using the formula:

10 year Treasury bond rate + 4.5% + Capital reserve adequacy

shortfall percentage

where:

10 year Treasury bond rate means the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 10 year term.

Capital reserve adequacy shortfall percentage means:

(a) if, for any future accounting period, the capital reserves of the company are projected to fall below the capital reserve adequacy level (see subsection 121AO(2)) by 1% or more at both the beginning and end of the accounting period-the percentage worked out by averaging the percentages worked out under each of the following subparagraphs:

(i) 0.2% for each 1% by which the capital reserves are projected to fall below the level at the beginning of the period;

(ii) 0.2% for each 1% by which the capital reserves are projected to fall below the level at the end of the period; or

(b) in any other case-nil.

Annual inflation rate assumption

"(7) In working out the existing business value, the annual inflation rate to be applied is worked out using the formula:

10 year Treasury bond rate - 4% (see subsection (6))

Expenditure assumption

"(8) In working out the existing business value, it is to be assumed that expenditure that the company will incur, in conducting its life insurance business, on recurring items after the demutualisation resolution day will be of the same kinds and amounts (increased to take account of any inflation, using the annual inflation rate in subsection (7)) as the company incurred in the accounting period, or part of an accounting period, ending on the demutualisation resolution day.

Investment return assumption

"(9) In working out the existing business value or the adjusted net worth, it is to be assumed that the annual rate of return on each investment of the company is:

(a) if the investment is a security with a term less than 2 years or is cash-the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 26 week term; or

(b) if the investment is any other kind of security-the Treasury bond rate for the applicable accounting day in respect of bonds with a 10 year term; or

Future distributable profits assumption

"(10) In working out the existing business value or the adjusted net worth, the future distributable profits are to be determined on the assumption that the company:

(a) will not distribute its profits so as to cause its capital reserves to fall below the capital reserve adequacy level (see subsection 121AO(2)) applicable to the company; and

(b) will distribute all of its profits except to the extent necessary for its capital reserves not to fall below the capital reserve adequacy level.

"121AN. Net tangible asset value of a general insurance company or mutual affiliate company

(1) The net tangible asset value of a general insurance company, or a mutual affiliate company, that demutualises using a demutualisation method is, in accordance with this section:

(a) the amount of its assets on the applicable accounting day (see subsection (4));

reduced by:

(b) the amount of its liabilities (including future liabilities) arising from its business conducted before that day. Australian accounting practice

"(2) The amount of the company's assets and liabilities (other than future liabilities) is to be worked out according to Australian accounting practice.

Eligible actuary and Australian actuarial practice

"(3) The amount of the company's future liabilities is to be worked out by an eligible actuary (see subsection 121AO(3)) according to Australian actuarial practice.

Applicable accounting day

"(4) The applicable accounting day is:

(a) if an accounting period of the company ends on the demutualisation resolution day-that day; or

(b) in any other case-the last day of the most recent accounting period of the company ending before the demutualisation resolution day.

Adjustment for changes after applicable accounting day

"(5) In a case covered by paragraph (4)(b), if any significant change in the amount of the company's assets or liabilities occurs between the applicable accounting day and the demutualisation resolution day, that amount is to be adjusted to take account of the change.

Continued business assumption

"(6) In working out the net tangible asset value, it is to be assumed:

(a) that after the applicable accounting day the company will continue to conduct its business and any other activity in the same way as it did before that day, and that it will not conduct any different business or other activity; and

(b) that the demutualisation will not occur.

Treasury bond rate, capital reserve adequacy level, eligible actuary and security

"121AO. Treasury bond rate

(1) The Treasury bond rate for the applicable accounting day in respect of bonds with a particular term is:

(a) if any Treasury bonds with that term were issued on the applicable accounting day-the annual yield on those bonds; or

(b) in any other case-the annual yield on Treasury bonds with that term, as published by the Reserve Bank of Australia and applicable to the accounting day.

Capital reserve adequacy level

"(2) The capital reserve adequacy level for a life insurance company that demutualises is:

(a) if, after 1 July 1995 and before the applicable accounting day mentioned in subsection 121AM(3) or 121AN(4), the Life Insurance Actuarial Standards Board established under the Life Insurance Act 1995 issued a capital reserve adequacy standard applicable to the company-the level of capital reserves required by that standard; or

(b) in any other case-the level of capital reserves required to provide adequate capital for the conduct of the life insurance business and other activities of the company.

Eligible actuary

"(3) An eligible actuary is a Fellow or Accredited Member of the Institute of Actuaries of Australia who is not an employee of:

(a) the mutual insurance company or, where demutualisation method 7 applies, the mutual insurance company or the mutual affiliate company; or

(b) a subsidiary of that company or, where demutualisation method 7 applies, of either company.

Security

"(4) A security is:

(a) a bond, debenture, certificate of entitlement, bill of exchange or promissory note; or

(b) a deposit with a bank, building society or other financial institution; or

"121AP. Subsidiary and wholly-owned subsidiary

Subsidiary

(1) A company (the test company) is a subsidiary of another company (the holding company) if at least half of the shares in the test company are beneficially owned by:

(a) the holding company; or

(b) a company that is, or 2 or more companies each of which is, a subsidiary of the holding company; or

(c) the holding company and a company that is, or 2 or more companies each of which is, a subsidiary of the holding company.

"(2) If a company is a subsidiary of another company (including because of this subsection), every company that is a subsidiary of the first-mentioned company is a subsidiary of the other company.

Wholly-owned subsidiary

"(3) A company is a wholly-owned subsidiary of another company if it would, under subsection (1) or (2), be a subsidiary of the other company assuming that the reference in subsection (1) to at least half of the shares were instead a reference to all of the shares.

"121AQ. Other definitions

In this Division:

annuity has the same meaning as in section 27A.

ETP means an eligible termination payment within the meaning of section 27A.

first trading day price, in relation to a listed share, means the price on the Australian stock exchange, as published by that exchange, at which the share was last traded on the trading day on which it was listed.

general insurance business means insurance business (within the meaning of the Insurance Act 1973) other than life insurance business.

life insurance business has the same meaning as in the Life Insurance Act 1995.

listed means listed for quotation in the official list of the Australian stock exchange.

superannuation pension means a pension payable from a superannuation fund within the meaning of section 27A.

undeducted contributions has the same meaning as in section 27A.

undeducted purchase price has the same meaning as in section 27A.

"121AR. List of definitions

The following table lists the expressions defined in this

Division and shows the provisions in which they are defined:

Definition Provision

annuity 121AQ

applicable accounting day 121AM(3) and 121AN(4)

capital reserve adequacy level 121AO(2)

eligible actuary 121AO(3)

embedded value 121AM(1)

ETP 121AQ

demutualise 121AD(1) and (2)

demutualisation method 121AE(3)

demutualisation method 1 to 121AF to

demutualisation method 7 121AL

demutualisation resolution day 121AD(3)

first trading day price 121AQ

general insurance business 121AQ

general insurance company 121AB(4)

insurance company 121AB(2)

life insurance business 121AQ

life insurance company 121AB(3)

listed 121AQ

listing period 121AE(6)

mutual affiliate company 121AC

mutual insurance company 121AB(1)

net tangible asset value 121AN(1)

policyholder/member group 121AE(4) and (5)

security 121AO(4)

subsidiary 121AP(1) and (2)

superannuation pension 121AQ

Treasury bond rate 121AO(1)

undeducted contributions 121AQ

undeducted purchase price 121AQ

wholly-owned subsidiary 121AP(3)

"Subdivision C-Tax consequences of demutualisation

"121AS. Part IIIA consequences of demutualisation

The table below sets out modifications of the application of Part IIIA in respect of events that are described in, or relate to events that are described in, particular demutualisation methods.

TABLE 1-MODIFICATIONS OF PART IIIA

Item Event Modifications

1 Any demutualisation method:

Extinguishment of membership rights as mentioned in paragraph (1)(a) of sections 121AF to 121AL.

Part IIIA does not apply to any disposal constituted by the extinguishment.

2 Demutualisation method 6:

The whole of the life insurance business of the life insurance company is transferred to the other company as mentioned in paragraph 121AK(1)(b).

For the purposes of applying section 160ZZO, the other company is taken to be related to the life insurance company.

3 Any demutualisation method:

A person (the disposer) in the policyholder/member group disposes of a right to have ordinary shares issued or distributed to the person, or the proceeds of sale of ordinary shares distributed to the person, as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d).

1. The disposer does not incur a capital loss in respect of the disposal if the disposal takes place before the demutualisation listing day (see note 4 to this table).

2. For the purpose of working out whether a capital gain accrued to the disposer, or a capital loss was incurred by the disposer (where modification 1 does not apply), in respect of the disposal, he or she is taken:

(a) to have paid, as consideration for the acquisition of the right disposed of, an amount worked out using the following formula:

Right disposed of Applicable company

Total of all rights x valuation amount

of the same kind (see note 1 to this table)

(b) to have paid the amount in paragraph (a), and to have acquired the right disposed of, on the demutualisation resolution day.

4 Demutualisation method 2, 4, 5, 6 or 7:

A person (the disposer) in the policyholder/member group disposes of an asset consisting of all or part of the person's interest in the trust property of the trustee mentioned in paragraph 121AG(1)(b) or (c), 121AI(1)(c) or (e), 121AJ(1)(c), 121AK(1)(c) or 121AL(1)(c).

1. The disposer does not incur a capital loss in respect of the disposal if the disposal takes place before the demutualisation listing day (see note 4 to this table).

(a) to have paid, as consideration for the acquisition of the interest disposed of, an amount worked out using the following formula:

Amount of interest Applicable company

disposed of valuation amount

Total amount of all interests x (see note 1 to this

in the trust property table)

; and

(b) to have paid the amount in paragraph (a), and to have acquired the interest disposed of, on the demutualisation resolution day.

5 Demutualisation method 3, 4 or 5

After the issue of the shares (each of which is a demutualisation share) in the mutual insurance company as mentioned in paragraph 121AH(1)(b), 121AI(1)(b) or 121AJ(1)(b), the holding company (the disposer) disposes of an asset consisting of:

(a) a demutualisation share, or an interest in such a share; or

(b) another share (a non-demutualisation bonus share) in the mutual insurance company, or an interest in such a share, where the share is a bonus share mentioned in Division 8 of Part IIIA and any of the demutualisation shares are the original shares mentioned in that Division.

1. The disposer does not incur a capital loss in respect of the disposal of the demutualisation share or interest in such a share, if the disposal takes place before the demutualisation listing day (see note 4 to this table).

2. If the disposal is of a demutualisation share (other than a demutualisation original share) or an interest in such a share then, for the purpose of working out whether a capital gain accrued to the disposer, or a capital loss was incurred by the disposer (where modification 1 does not apply), in respect of the disposal, the disposer is taken:

(a) to have paid as consideration for the acquisition of the share or interest both:

(i) the amount worked out using the

formula:

Share or amount of Applicable company valuation

interest disposed of amount

Total demutualisation shares x (see note 1 to this table)

or amount of interests in

such shares

(ii) any consideration actually paid or given for the acquisition; and

(b) to have paid the amount in subparagraph (a)(i) on the demutualisation resolution day and the amount in subparagraph (a)(ii) when it was actually paid; and

3. If the disposal is of either:

(a) a demutualisation original share, or an interest in such a share; or

(b) a non-demutualisation bonus share, or an interest in such a share; then, for the purpose of working out whether a capital gain accrued to the disposer, or a capital loss was incurred by the disposer (where modification 1 does not apply), in respect of the disposal:

(c) for the purposes of applying Division 8 of Part IIIA, the consideration for the acquisition of all of the demutualisation original shares to be taken into account under that Division is taken to consist of both:

(i) if the disposal and all previous disposals of the demutualisation original shares and the non-demutualisation bonus shares, or interests in them, take place after the demutualisation listing day--the amount worked out using the formula:

Number of demutualisation Listing day company

original shares x valuation amount

Number of (see note 3 to this table)

demutualisation shares

; and

(ii) if subparagraph (i) does not

apply-the amount worked out using the formula:

Number of demutualisation Pre-listing day company

original shares x valuation amount

Number of (see note 2 to this table)

demutualisation shares

; and

(iii) any consideration actually paid or given for the acquisition of the share or interest disposed of; and

(d) if the disposal is of a demutualisation original share or an interest in such a share, the disposer is taken:

(i) to have paid the amount in subparagraph (c)(i) or (ii) on the demutualisation resolution day and the amount in subparagraph (c)(iii) when it was actually paid; and

(ii) to have acquired the share or interest on the demutualisation resolution day.

6 Demutualisation method 7:

After the issue of the shares (each of which is a demutualisation share ) in the mutual insurance company and the mutual affiliate company as mentioned in paragraph 121AL(1)(b), the holding company (the disposer) disposes of an asset consisting of:

(a) a demutualisation share, or an interest in such a share; or

(b) another share (a non-demutualisation bonus share) in the mutual insurance company or the mutual affiliate company, or an interest in such a share, where the share is a bonus share mentioned in Division 8 of Part IIIA and any of the demutualisation shares are the original shares mentioned in that Division.

(a) to have paid as consideration for the acquisition of the share or interest both:

(i) the amount worked out using the formula:

Share or amount of interest

disposed of Net tangible asset value of

Total demutualisation x the company concerned

shares or amount of

interests in such shares

in the company concerned

; and

(ii) any consideration actually paid or given for the acquisition; and

(b) to have paid the amount in subparagraph (a)(i) on the demutualisation resolution day and the amount in subparagraph (a)(ii) when it was actually paid; and

3. If the disposal is of either:

(a) a demutualisation original share, or an interest in such a share; or

(i) the amount worked out using the formula:

Number of demutualisation Pre-listing day company

original shares x valuation amount

Number of

demutualisation shares

(ii) any consideration actually paid or given for the acquisition of the share or interest disposed of; and

(d) if the disposal is of a share connected with the demutualisation or interest in such a share, the disposer is taken:

(i) to have paid the amount in subparagraph (c)(i) on the demutualisation resolution day and the amount in subparagraph (c)(ii) when it was actually paid; and

(ii) to have acquired the share or interest on the demutualisation resolution day.

7 Demutualisation method 3, 4, 5 or 7:

After the issue of the shares in the mutual insurance company to the holding company as mentioned in paragraph 121AH(1)(b), 121AI(1)(b), 121AJ(1)(b), or in the mutual insurance company and the mutual affiliate company as mentioned in paragraph 121AL(1)(b):

(a) the ultimate holding company (the disposer) disposes of an asset consisting of either of the following shares in the holding company or an interposed holding company:

(i) a share (a demutualisation share) acquired before the issue of the shares in the mutual insurance company, or an interest in such a share; or

(ii) another share (a non-demutualisation bonus share), or an interest in such a share, where the share is a bonus share mentioned in Division 8 of Part IIIA and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that Division; or

(b) the interposed holding company, or any of the interposed holding companies, (the disposer) disposes of an asset consisting of either of the following shares in the holding company or an interposed holding company:

(i) a share (a demutualisation share) acquired before the issue of the shares in the mutual insurance company, or an interest in such a share; or

(For the purposes of the modifications relating to this item, if any of the original shares mentioned in Division 8 of Part IIIA is a demutualisation share, it is called a demutualisation original share.) (The ultimate holding company and interposed holding company are those mentioned in paragraph 121AH(1)(c), 121AI(1)(c), 121AJ(1)(c) or 121AL(1)(c)).

The same modifications apply as for item

8 Demutualisation method 2 or 4:

The rights attaching to the special shares held by the trustee become the same as those attaching to the ordinary shares as mentioned in subparagraph 121AG(1)(b)(ii) or paragraph 121AI(1)(d).

Part IIIA does not apply to any disposal constituted by the change in the rights.

9 Demutualisation method 2, 4, 5, 6 or 7:

The trustee (the disposer):

(a) sells an ordinary share (a demutualisation share) in the company as mentioned in paragraph 121AG(1)(d), 121AI(1)(f), 121AJ(1)(d), 121AK(1)(d) or 121AL(1)(d); or

(b) sells another share (a non-demutualisation bonus share), where the share is a bonus share mentioned in Division 8 of Part IIIA and any of the demutualisation shares (whether or not sold at the time) are the original shares mentioned in that Division.

1. The person in the policyholder/member group, instead of the trustee, is taken:

(a) to have sold the demutualisation share or non-demutualisation bonus share; and

(b) to have paid, given and received any consideration that was paid, given or received by the trustee in respect of either share; and

2. The modifications in item 5 apply to the sale of the demutualisation share or non-demutualisation bonus share in the same way as they do to the disposal of such shares covered by that item.

10 Demutualisation method 2, 4, 5, 6 or 7:

The trustee distributes an ordinary share as mentioned in paragraph 121AG(1)(d), 121AI(1)(f), 121AJ(1)(d), 121AK(1)(d) or 121AL(1)(d).

Part IIIA does not apply to any disposal constituted by the distribution.

11 Any demutualisation method:

A person (the disposer) in the policyholder/member group disposes of an asset consisting of:

(a) a share (a demutualisation share), or an interest in such a share, issued or distributed to the person as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d); or

(b) another share (a non-demutualisation bonus share) in the same company, or an interest in such a share, where the share is a bonus share mentioned in Division 8 of Part IIIA and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that Division.

The same modifications apply as for item 5.

12 Various demutualisation methods

A disposal of an asset takes place before the demutualisation listing day, where:

(a) modification 1 of item 3, 4, 5, 6, 7 or 11 of this table applies to the disposal; and

(b) a roll-over provision (see note 5 to this table) applies to the disposal.

1. If the person who is taken to acquire the asset under the roll-over provision disposes of it before the demutualisation listing day, the person does not incur a capital loss in respect of that disposal.

2. If the person disposes of the asset on or after the demutualisation listing day, then for the purposes of applying the roll-over provision to that disposal, the modifications in the item in this table apply as if modification 1 were not made.

Notes:

1. For the purposes of the table, the applicable company valuation amount, in relation to the disposal of an asset or the allocation of an amount to a member in the records of a superannuation fund, is:

(a) if the asset is disposed of, or the amount is allocated, before the demutualisation listing day-the pre-listing day company valuation amount; or

(b) in any other case-the listing day company valuation amount.

2. The pre-listing day company valuation amount is:

(a) in relation to demutualisation methods 1 to 6, where the mutual insurance company is a life insurance company-the embedded value of the company; or

(b) in relation to demutualisation methods 1 to 6, where the mutual insurance company is a general insurance company-the net tangible asset value of the company; or

(c) in relation to demutualisation method 7-the sum of the net tangible asset values of the general insurance company and the mutual affiliate company.

3. The listing day company valuation amount is the lesser of:

(a) the pre-listing day company valuation amount; and

(b) the amount worked out using the formula:

First trading day price of a listed

ordinary share mentioned in the

demutualisation method concerned x Total number of ordinary shares

issued or distributed to, or to

be sold on behalf of, persons

in the policyholder/member group

4. The demutualisation listing day is the day on which the ordinary shares mentioned in the demutualisation method concerned are listed.

5. A roll-over provision is section 160X or any provision of Division 17 of Part IIIA.

"121AT. Other tax consequences of demutualisation

The table below sets out modifications of the application of this Act (other than Part IIIA) in respect of events that are described in, or relate to events that are described in, particular demutualisation methods.

TABLE 2-MODIFICATIONS OF THE ACT (OTHER THAN PART IIIA)

Item Event Modifications

1 Event described in item 1 of Table 1.

No amount is included in, or allowable as a deduction from, assessable income in respect of the extinguishment.

2 Event described in item 3 or 4 of Table 1.

1. If the disposal takes place before the demutualisation listing day (see note 4 to Table 1):

(a) no loss is allowable as a deduction from the disposer's assessable income in respect of the disposal; and

(b) any deduction allowable from the disposer's assessable income in respect of the acquisition of the right or interest does not exceed the amount included in the disposer's assessable income in respect of the disposal.

2. Paragraphs 2(a) and (b) of the modifications column for item 3 or 4 in Table 1 apply for the purposes of working out:

(a) the amount of any profit included in the disposer's assessable income in respect of the disposal; or

(b) the amount of any deduction allowable from the disposer's assessable income in respect of the acquisition of the right or interest.

3 Event that would be described in item 5 of Table 1 if the references in that item to bonus shares and original shares mentioned in Division 8 of Part IIIA were instead references to bonus shares and original shares mentioned in section 6BA.

1. If the disposal is of a demutualisation share, or interest in such a share, and the disposal takes place before the demutualisation listing day:

(a) no loss is allowable as a deduction from the disposer's assessable income in respect of the disposal; and

(b) any deduction allowable from the disposer's assessable income in respect of the acquisition of the share or interest does not exceed the amount included in the disposer's assessable income in respect of the disposal.

2. If the disposal is of a demutualisation share (other than a demutualisation original share), or an interest in such a share, then paragraphs 2(a) to (c) of the modifications column for item 5 in Table 1 apply for the purposes of working out:

(a) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer's assessable income in respect of the disposal; or

(b) the amount of any deduction allowable (where modification 1 does not apply) from the disposer's assessable income in respect of the acquisition of the share or interest.

3. If the disposal is of either:

(a) a demutualisation original share, or an interest in such a share; or

(b) a non-demutualisation bonus share, or an interest in such a share;

then paragraphs 3(c) and (d) of the modifications column for item 5 in Table 1 apply for the purpose of working out:

(c) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer's assessable income in respect of the disposal; or

(d) the amount of any deduction allowable (where modification 1 does not apply) from the disposer's assessable income in respect of the acquisition of the share or interest.

In applying paragraph 3(c) of the modifications column for item 5 in Table 1, the reference to Division 8 of Part IIIA is taken instead to be a reference to section 6BA.

4 Event that would be described in item 6 of Table 1 if the references in that item to bonus shares and original shares mentioned in Division 8 of Part IIIA were instead references to bonus shares and original shares mentioned in section 6BA.

1. If the disposal is of a demutualisation share, or interest in such a share, and the disposal takes place before the demutualisation listing day:

(a) no loss is allowable as a deduction from the disposer's assessable income in respect of the disposal; and

2. If the disposal is of a demutualisation share (other than a demutualisation original share), or an interest in such a share, then paragraphs 2(a) to (c) of the modifications column for item 6 in Table 1 apply for the purposes of working out:

(a) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer's assessable income in respect of the disposal; or

(b) the amount of any deduction allowable (where modification 1 does not apply) from the disposer's assessable income in respect of the acquisition of the share or interest.

3. If the disposal is of either:

(a) a demutualisation original share, or interest in such a share; or

(b) a non-demutualisation bonus share, or an interest in such a share;

then paragraphs 3(c) and (d) of the modifications column for item 6 in Table 1 apply for the purpose of working out:

(c) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer's assessable income in respect of the disposal; or

(d) the amount of any deduction allowable (where modification 1 does not apply) from the disposer's assessable income in respect of the acquisition of the share or interest.

In applying paragraph 3(c) of the modifications column for item 6 in Table 1, the reference to Division 8 of Part IIIA is taken instead to be a reference to section 6BA.

5 Event that would be described in item 7 of Table 1 if the references in that item to bonus shares and original shares mentioned in Division 8 of Part IIIA were instead references to bonus shares and original shares mentioned in section 6BA.

The same modifications as for item 3 of this table apply.

6 Event described in item 8 of Table 1.

No amount is included in, or allowable as a deduction from, assessable income in respect of the change in the rights.

7 Event that would be described in item 9 of Table 1 if the references in that item to bonus shares and original shares mentioned in Division 8 of Part IIIA were instead references to bonus shares and original shares mentioned in section 6BA.

1. The person in the policyholder/member group, instead of the trustee is taken:

(a) to have sold the demutualisation share or non-demutualisation bonus share; and

(b) to have paid, given and received any consideration that was paid, given or received by the trustee in respect of either share; and

2. The modifications in item 3 of this table apply to the sale of the demutualisation share or non-demutualisation bonus share in the same way as they do to the disposal of such shares covered by that item.

8 Event that would be described in item 11 of Table 1 if the references in that item to bonus shares and original shares mentioned in Division 8 of Part IIIA were instead references to bonus shares and original shares mentioned in section 6BA.

The same modifications as for item 3 of this table apply.

9 Under demutualisation method 6, the whole of the life insurance business of a life insurance company is transferred to another company as mentioned in paragraph 121AK(1)(b).

The other company is taken to continue to carry on the transferred life insurance business of the mutual life insurance company.

10 An ordinary share is issued or distributed to a person in the policyholder/member group as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d).

No amount is included in, or allowable as a deduction from, assessable income of the person in respect of the issue or distribution of the share, except where the share is issued in consideration for services provided, or to be provided, by the person.

11 Ordinary shares in the company are issued or distributed as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d) to a person in the policyholder/member group who is the trustee of a superannuation fund to hold on behalf of a member of the fund. The trustee within 30 days allocates to the member, in the records of the fund, an amount representing the member's contributions in respect of the shares (the allocation shares).

If the trustee pays an ETP, a superannuation pension or an annuity to the member, the undeducted contributions in relation to the ETP, or undeducted purchase price of the pension or annuity, is increased by the amount worked out using the formula:

Number of allocation shares Applicable company

Total number of ordinary shares valuation amount

issued or distributed to, or to be x (see note 1 to Table 1)

sold on behalf of, the

policyholder/member group

12 A resolution is passed to proceed, in accordance with one of the demutualisation methods, with the demutualisation of:

(a) a mutual insurance company that is a general insurance company; or

(b) both such a mutual insurance company and a mutual affiliate company.

Immediately before the demutualisation resolution day:

(a) in the case of any demutualisation method-the general insurance company or any wholly-owned subsidiary of the general insurance company; or

(b) in the case of demutualisation method 7-the mutual affiliate company, a wholly-owned subsidiary of the mutual affiliate company, or a company all of whose shares are beneficially owned by the general insurance company and the mutual affiliate company; has a class A franking surplus, a class B franking surplus or a class C franking surplus (all within the meaning of art IIIAA).

The class A franking account balance, class B franking account balance or class C franking account balance (all within the meaning of Part IIIAA) is reduced to nil at the beginning of the demutualisation resolution day.

13 A resolution is passed to proceed with the demutualisation of a mutual insurance company or both a mutual insurance company and a mutual affiliate company. A dividend that was declared before the demutualisation resolution day is paid on or after the demutualisation resolution day to:

(a) in the case of any demutualisation method-the mutual insurance company or any wholly-owned subsidiary of the mutual insurance company; or

No franking credit (within the meaning of Part IIIAA) arises for the company or the subsidiary in relation to the payment of the dividend on or after the demutualisation resolution day.".

2. Subsection 170(10):

Omit "or 105AB", substitute ", 105AB or 121AT".

3. Application

The amendments made by this Schedule apply to mutual insurance companies and mutual affiliate companies that existed at 7.30 p.m., by legal time in the Australian Capital Territory, on 9 May 1995.

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Taxation Laws Amendment Act (No. 4) 1995 (171 of 1995)

SCHEDULE 3 AMENDMENTS OF THE INCOME TAX ASSESSMENT ACT 1936 RELATING TO DEMUTUALISATION OF INSURANCE COMPANIES AND AFFILIATES

1. After Division 9 of Part III

"Division 9AA-Demutualisation of insurance companies and affiliates

"Subdivision A-What this Division is about

"121AA. What this Division is about

"Subdivision B-Key concepts and related definitions

"121AB. Insurance company definitions

"121AC. Mutual affiliate company

"121AD. Demutualisation and demutualisation resolution day

"121AE. Demutualisation methods 1 to 6

"121AEA. Replacement of policyholders by persons exercising certain rights

"121AF. Demutualisation method 1

"121AG. Demutualisation method 2

"121AH. Demutualisation method 3

"121AI. Demutualisation method 4

"121AJ. Demutualisation method 5

"121AK. Demutualisation method 6

"121AL. Demutualisation method 7

"121AM. Embedded value of a mutual life insurance company

"121AN. Net tangible asset value of a general insurance company or mutual affiliate company

"121AO. Treasury bond rate

"121AP. Subsidiary and wholly-owned subsidiary

"121AQ. Other definitions

"121AR. List of definitions

"Subdivision C-Tax consequences of demutualisation

"121AS. Part IIIA consequences of demutualisation

"121AT. Other tax consequences of demutualisation

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