ATO Interpretative Decision

ATO ID 2002/842 (Withdrawn)

Income Tax

Life Insurance Contracts: ordinary investment linked policies
FOI status: may be released

This ATO ID is withdrawn form the database because it contains a view in respect of provisions of the Income Tax Assessment Act 1997 that doesn't apply after the 2006- 2007 income year. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2006-2007 income year.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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.

This ATOID provides you with the following level of protection:

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a life insurance company entitled to an exemption under section 320-40 of the Income Tax Assessment Act 1997 (ITAA 1997) if, after 30 June 2000, it increases the annual management fee that it imposes under its ordinary investment linked policy (that is not a participating or discretionary policy), to an amount that does not exceed the maximum annual management fee that it was entitled to impose under the terms and conditions of the life insurance policy entered into before 1 July 2000?

Decision

Yes. A life insurance company is entitled to an exemption under section 320-40 of the ITAA 1997 if, after 30 June 2000, it increases the annual management fee that it imposes under its ordinary investment linked policy (that is not a participating or discretionary policy), to an amount that does not exceed the maximum annual management fee that it was entitled to impose under the terms and conditions of the life insurance policy entered into before 1 July 2000.

Facts

The terms of an ordinary investment linked life insurance policy entered into before 1 July 2000 entitled the company to impose an annual management fee of 1.5 per cent of assets under management.

The life insurance company imposed an annual management fee of 1.25 per cent of assets under management under the terms of its ordinary investment linked policy before 1 July 2000.

On 30 June 2001 the life insurance company imposed an annual management fee of 1.3 per cent of assets under management.

Reasons for Decision

Under subsection 320-40(1) of the ITAA 1997 a life insurance company is entitled to an exemption for one-third of specified management fees for contracts made with the company before 1 July 2000.

Subsection 320-40(4) of the ITAA 1997 provides that the fees and charges imposed by a life insurance company after 30 June 2000 on a policy entered into before 1 July 2000 are only exempt to the extent of any fees or charges that the company was entitled to make under the terms of the policy as applying immediately before 1 July 2000.

The requirement of subsection 320-40(4) of the ITAA 1997 is satisfied as the annual management fee that can be imposed under the terms of the investment linked life insurance policy after 30 June 2000 does not exceed the management fee that the life insurance company was entitled to impose under the terms of the policy before 1 July 2000.

Further, the life insurance policy is not excluded from the exemption under section 320-40 of the ITAA 1997 by subsection 320-40(3) of the ITAA 1997 as the policy is not a participating or discretionary policy, nor is it payable only on the death or disability of the policyholder.

Therefore the life insurance company is entitled to an exemption for specified management fees in respect of an ordinary investment linked life insurance policy.

Date of decision: 10 July 2002

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 320-40
   subsection 320-40(1)
   subsection 320-40(3)
   subsection 320-40(4)

Related ATO Interpretative Decisions
ATO ID 2002/837
ATO ID 2002/838
ATO ID 2002/839
ATO ID 2002/840
ATO ID 2002/841

Keywords
Life assurance expenses
Life assurance
Life assurance industry
Management fees expenses

Business Line: Centres of Expertise Superannuation & Insurance

Date of publication: 23 August 2002

ISSN: 1445-2782

history

	Date:	Version:
	10 July 2002	Original statement
You are here	18 February 2011	Archived

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