Tax Laws Amendment (2004 Measures No. 7) Act 2005 (41 of 2005)

Schedule 6   Consolidation

Part 5   Insurance companies

Income Tax Assessment Act 1997

26   At the end of Division 713

Add:

Subdivision 713-M - General insurance companies

Guide to Subdivision 713-M

713-700 What this Subdivision is about

This Subdivision sets out special rules for a general insurance company becoming or ceasing to be a subsidiary member of a consolidated group.

Table of sections

Tax cost setting rules for general insurance companies joining consolidated group

713-705 Certain assets taken to be retained cost base assets where general insurance company joins group

Liabilities and reserves of general insurance companies joining and leaving consolidated groups

713-710 Treatment of liabilities and reserves for income year when general insurance company joins or leaves group

713-715 If general insurance company joins consolidated group

713-720 If general insurance company leaves consolidated group

Tax cost setting rules for general insurance companies joining consolidated group

713-705 Certain assets taken to be retained cost base assets where general insurance company joins group

(1) This section applies if:

(a) a *general insurance company becomes a *subsidiary member of a *consolidated group at a time (the joining time ); and

(b) that company has demutualised under Division 9AA of Part III of the Income Tax Assessment Act 1936; and

(c) 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.

(2) A goodwill asset of the company just before the joining time is a retained cost base asset .

(3) The goodwill asset's *tax cost setting amount is its amount (worked out in accordance with subsection 121AN(2) of the Income Tax Assessment Act 1936) on the applicable accounting day (see subsection 121AN(4) of that Act).

Liabilities and reserves of general insurance companies joining and leaving consolidated groups

713-710 Treatment of liabilities and reserves for income year when general insurance company joins or leaves group

Sections 713-715 and 713-720 affect how sections 321-10, 321-15, 321-50 and 321-55 in Schedule 2J to the Income Tax Assessment Act 1936 (the affected sections ) apply in relation to these values (the affected values ):

(a) the value of the outstanding claims liability of a *general insurance company under *general insurance policies that is worked out under section 321-20 in Schedule 2J to the Income Tax Assessment Act 1936;

(b) the value of the unearned premium reserve of a general insurance company under general insurance policies that is worked out under section 321-60 in that Schedule.

Note 1: Sections 321-10 and 321-15 in that Schedule both operate on the basis of a comparison of the value of the outstanding claims liability of a general insurance company at the end of the current year with the value of that liability at the end of the previous income year, so that:

(a) section 321-10 includes an amount in the company's assessable income for the current year if the value at the end of the current year is less than the value at the end of the previous income year; and

(b) section 321-15 allows a deduction for the current year if the value at the end of the current year is more than the value at the end of the previous income year.

Note 2: Sections 321-50 and 321-55 in that Schedule both operate on the basis of a comparison of the value of the unearned premium reserve of a general insurance company at the end of the current year with the value of that reserve at the end of the previous income year, so that:

(a) section 321-50 includes an amount in the company's assessable income for the current year if the value at the end of the current year is less than the value at the end of the previous income year; and

(b) section 321-55 allows a deduction for the current year if the value at the end of the current year is more than the value at the end of the previous income year.

713-715 If general insurance company joins consolidated group

(1) This section applies if a *general insurance company becomes a *subsidiary member of a *consolidated group at a time (the joining time ).

(2) The object of this section is to ensure that the *head company of the *consolidated group bears the income tax consequences relating to changes after the joining time in the affected values.

Note: The general insurance company bears the income tax consequences relating to a change in the affected values before the joining time, because section 701-30 ensures that the affected sections apply in relation to a part of the income year before that time when the company was not a subsidiary member of a consolidated group as if that part were an income year.

(3) The affected sections apply for the head company core purposes set out in section 701-1 (Single entity rule) as if each of the affected values at the end of the last income year ending before the joining time were the amount that would have been that value had that income year ended just before the joining time.

713-720 If general insurance company leaves consolidated group

(1) This section applies if a *general insurance company ceases to be a *subsidiary member of a *consolidated group at a time (the leaving time ) in an income year (the leaving year ).

(2) The object of this section is to ensure that:

(a) the *head company of the *consolidated group bears the income tax consequences relating to changes before the leaving time in the affected values; and

(b) the *general insurance company bears the income tax consequences relating to changes after the leaving time in the affected values.

Head company's income or deduction

(3) For the head company core purposes set out in section 701-1 (Single entity rule) relating to the leaving year (but not later income years), the affected sections have effect as if each of the affected values at the end of the leaving year for the *head company of the *consolidated group were increased by the relevant value for the *general insurance company at the end of the previous income year worked out under subsection (5).

General insurance company's income or deduction

(4) For the entity core purposes set out in section 701-1 (Single entity rule) relating to the *general insurance company and the leaving year, the affected sections have effect as if each of the affected values for the general insurance company at the end of the previous income year were worked out under subsection (5).

Working out affected values at the end of the previous income year

(5) Work out each of the affected values for the *general insurance company at the end of the previous income year as if it had ended at the leaving time.