ATO Interpretative Decision

ATO ID 2002/258 (Withdrawn)

Income Tax

Capital gains tax: Demutualisation of a United Kingdom life assurance society - Resident superannuation policyholder
FOI status: may be released
Status of this decision: Decision Withdrawn 3 July 2003
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the disposal of a taxpayer's superannuation policy upon the demutualisation of United Kingdom Scottish Widows Fund and Life Assurance Society a CGT Event under Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, the disposal of the superannuation policy is a CGT event C2 pursuant to section 104-25 of the ITAA 1997.

Facts

The taxpayer had taken out an employer-sponsored superannuation policy with the United Kingdom Scottish Widows Fund and Life Assurance Society (the UK Society) after 20 September 1985.

The contributions made under the policy have been preserved in the fund for payment later when the taxpayer attains the retirement age. No contributions have been made to the fund for many years.

The UK Society demutualised and paid compensation to qualifying members for the loss of their membership rights.

Reasons for Decision

On the demutualisation of the UK Society, the taxpayer surrendered a CGT asset, the membership rights. The cancellation of the membership rights was a CGT event C2, cancellation, surrender and similar endings under section 104-25 of the ITAA 1997.

The time when the CGT event happened was the date that the UK Society demutualised.

The capital gain was the difference between the cost base of the taxpayer's membership rights and the capital proceeds. The capital proceeds were the total amount the taxpayer received for the cancellation of the membership rights. The cost base of the membership rights was nil as the payments made to the UK Society only related to the superannuation policy, not the membership rights.

Under subsection 115-25(1) of the ITAA 1997 a capital gain is a discount capital gain only if it is made from a CGT asset that was acquired at least 12 months before the CGT event happened. The taxpayer was entitled to the 50% CGT discount because the membership rights were held for more than 12 months. The taxpayer, being the superannuation policyholder, was considered to have held a continuous membership interest with the UK Society.

When the first contribution was made under the superannuation policy, the taxpayer acquired the membership rights in the UK Society. The taxpayer's membership rights would not be terminated even if no further contributions were to be made. The money had to be retained and be managed in the fund until the member attained the retirement age.

Date of decision:  5 December 2001

Year of income:  Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1997
   section 104-25
   subsection 115-25(1)

Keywords
Capital gains tax
CGT demutualisation
Foreign superannuation payments
Mutual insurance associations
Superannuation policies

Business Line:  Centres of Expertise Capital Gains Tax

Date of publication:  22 March 2002

ISSN: 1445-2782

history
  Date: Version:
  5 December 2001 Original statement
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