Draft Taxation Ruling

TR 94/D38

Income tax: life insurers and friendly societies - effect of 1994 amendments to Division 8 and Division 8A

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TR 95/28.

FOI status:

draft only - for comment

Preamble

What this Ruling is about

1. This Ruling provides answers to questions which have been raised concerning the amendments to Division 8 and Division 8A of Part III of the Income Tax Assessment Act 1936 ('the Act') contained in Taxation Laws Amendment Act 1994 ('the 1994 amendments'), dealing with the taxation treatment of life insurers and registered organisations (such as friendly societies). In particular it deals with the taxation treatment of expenses incurred by life insurance companies in obtaining superannuation premiums and the investment component of life premiums before and from 1 January 1994.

2. Generally speaking, the registered organisations provisions in Division 8A mirror the provisions of Division 8. In so far as the 1994 amendments relating to registered organisations are expressed in similar terms as those relating to life companies, the answers below apply similarly to them.

Ruling

To which years of income does the 'negative list' of expenses which are not allowable to life insurance companies under section 112BA apply?

3. The negative list applies to assessments in respect of income of the year of income in which 1 July 1988 occurred and all later years of income (subsection 112BA(5)). In other words, the negative list continues to apply even after 1 January 1994 when the 'positive lists' contained in sections 111AC and 111AD come into operation. As section 112BA applies despite any other provision of the Act (subsection 112BA(1)), an item of the negative list is not deductible even if it would be otherwise deductible under the positive lists in sections 111AC or 111AD or under any other section.

What do amounts paid in settlement of a dispute on the liability of a life insurance company under a policy include for the purposes of paragraph 112BA(1)(d)?

4. No deduction is allowable to a life insurance company in respect of an amount paid or payable to the holder of a life assurance policy, or an associate, in settlement of a dispute as to the liability of the company under the policy. The provision includes any amount paid or payable in settlement of a dispute, regardless of whether the dispute is between the company and the policyholder, or between the company and another party (e.g. with a third party). If the original claim by the policyholder which originated the dispute does not involve a claim for interest but the amount paid by the company in settlement of the dispute does include an amount of interest, that amount is not deductible because it is part of the settlement amount (including if it is payable under a Court order). However, if the interest is not part of the amount paid in settlement of the dispute but rather it is paid separately, it does not fall within paragraph 112BA(1)(d).

What is the meaning of 'a refund or in the nature of a refund' in paragraph 112BA(2)(a)(v)?

5. The word 'refund' is not defined and therefore has its ordinary meaning of 'repayment'. An amount can be a refund or in the nature of a refund even though it is not the same monies which are repaid. Amounts 'in the nature of a refund' are amounts which although not falling in the meaning of 'refund' are sufficiently similar to that concept. The intention of the paragraph is that if a premium has not been included in the assessable income of the life insurer because of section 111, then if that amount or part of that amount is returned to the payer of the premium no deduction is allowable to the company.

6. To allow a deduction in this type of case would allow companies to artificially inflate their deductions (e.g. if a company received 200% of the premium required and then refunded half to the payer, providing a deduction for the refund would distort the calculation of taxable income and would not give the correct result).

8. The paragraph applies regardless of what the amount repaid is called, i.e. whether it is called 'refund' or not. We do not accept the argument that payments such as 'participating' or 'experience' commissions paid by a reinsurer to a life insurer are not refunds or amounts in the nature of a refund. Such commissions are obviously not included in the term 'commissions' in paragraph (a) of the positive lists which is to be interpreted ejusdem generis with the words 'salaries, wages, bonuses, allowances, or similar benefits' being the type of benefits provided to the company's sales force in respect of their selling activities. The term 'commission' possesses the connotation of an amount payable in respect of things being done and therefore cannot describe the return of part of the premium by the reinsurer to the life insurer to recognise a good claims record.

Are general management expenses included in the 'positive lists' in sections 111AC and 111AD?

9. No, because of the operation of subsections 111AC(5) and 111AD(6). Those sections and section 113 are mutually exclusive. The interactions of the relevant provisions of Division 8 is addressed in the Attachment to this Ruling.

What is the treatment of general management expenses from 1 January 1994?

10. Section 113 was amended with effect from 1 January 1994 to ensure that the expression 'assessable income' in the general management formula contained in subsection 113(2) included superannuation premiums and the investment component of certain life premiums (no equivalent provision was required before the 1994 amendments because sections 111A and 111AA operated to treat certain premiums as assessable income for the purposes of determining deductions including deductions for general management expenses). There are no changes in substance to the treatment of general management expenses in the 1994 amendments.

To what expenditure does section 113A apply?

11. This section was introduced to deal with general management expenses exclusively incurred in gaining or producing assessable income (including deemed assessable income such as superannuation premiums or the investment component of certain life premiums) and which are therefore not deductible as general management expenses because of the operation of paragraph 113(3)(b). See Example 1 at paragraph 56.

12. Between 1988 and the end of 1993, subject to the 'negative list', some of these expenses would have been deductible under section 51 because of sections 111A and 111AA, if incurred in relation to obtaining superannuation premiums or the investment component of certain life premiums. From 1 January 1994, such expenses are not allowed as a consequence of the repeal of sections 111A and 111AA, nor, being general management expenses, are they deductible under sections 111AC and 111AD. Therefore they are made expressly deductible under section 113A unless they would not have been deductible before the 1994 amendments (subsection 113A(2)). Deductions allowable under section 113A are not subject to section 111C because they relate exclusively to the company's assessable income (paragraph 111C(1)(b)).

13. An example of the type of expense deductible under section 113A is rent treated as a general management expense and payable in respect of a building which is used by the company for staff dealing with superannuation policies only. The section provides for a deduction for expenditure 'to the extent to which' it was incurred in gaining or producing the superannuation premiums or the investment component of the life premiums. It follows that if the expenditure also relates to another purpose, it will need to be apportioned (on a basis similar to section 51 apportionment): for example if the expenditure also relates to gaining income from the investment of superannuation premiums, then to this extent it will be deductible under section 51 rather than under section 113A.

14. In relation to friendly societies and other registered organisations, paragraphs 116HAB(2)(f) and 116HAC(3)(f) allow a deduction for expenses in the general management of the taxpayer's business to the extent to which the expenses are incurred in gaining or producing superannuation premiums or the investment component of life premiums respectively. The difference in drafting approach is due to the fact that the registered organisations provisions in Division 8A do not contain a 'general management' provision equivalent to section 113.

Can expenses incurred partly for the purposes specified in paragraphs 111AC(2)(a), (b), (d), 111AD(3)(a), (b), (d) and partly for another purpose be apportioned under those paragraphs?

15. No. Those items of the positive lists apply to make certain expenses deductible only if the expenses are exclusively incurred for the purposes described in the paragraphs. If expenditure is incurred for more than one purpose, it may be apportioned under paragraphs (c) and (e) of the positive lists provided it satisfies the requirements of those provisions.

How are expenses deductible under paragraphs (c) and (e) of the positive lists apportioned?

16. Paragraph (e) of the positive lists provides that a deduction is allowable for any other loss or outgoing to the extent to which they are incurred in preparing, selling or issuing the relevant policies or collecting premiums. The paragraph uses the words 'to the extent to which' as used in subsection 51(1) and which refer to the possibility of apportionment. The issue of apportionment is a question of fact to be determined in the individual circumstances of each case. Clearly, in the case of section 51, the basis of apportionment varies depending on the type of expenditure and on the circumstances of the case - examples of bases of apportionment include the time basis and the proportion of business basis.

17. In the case of apportionment under paragraph (e) of the positive lists, appropriate bases would include any fair and reasonable basis including, depending on the circumstances: the percentage of business handled by the relevant staff, time basis (time spent on different types of products), the proportion that the relevant premiums bear to total premiums, or any other accepted accounting basis of apportionment. A similar approach may be taken to apportionment under paragraph (c).

18. As the positive lists do not apply to expenses of general management, it is not open to a company to claim a proportion of an expense under paragraphs (c) and (e) of the positive lists and the rest of the expense under section 113. As sections 111AC and 111AD on the one hand and section 113 on the other are mutually exclusive, an expense must be characterised in its entirety as either an expense of general management or as a different type of expense.

If expenses are apportioned under paragraphs (c) and (e) of the positive lists, are they also subject to apportionment under section 111C?

19. Section 111C applies to apportion deductions which are do not relate exclusively to assessable income and which are allowable under a specific provision of the Act, for example to deductions allowable because of the operation of subsections 111AC(3) and 111AD(4). Expenditure which is deductible because of subsections 111AC(1) and 111AD(2) is not subject to section 111C (this is similar to the pre-1994 amendments operation of section 111C which specifically excluded deductions allowable under section 51). However, the amount allowed under subsections 111AC(1) and 111AD(2) cannot exceed the amount which would have been allowed before the 1994 amendments (subsections 111AC(6) and 111AD(7)) - therefore if section 111C would have limited deductions before 1994, the deduction allowable under subsections 111AC(1) and 111AD(2) is reduced to that limited amount. Deductions allowable under section 113 continue to be excluded from the operation of section 111C.

If expenses are apportioned under paragraphs (c) and (e) of the positive lists, are they also subject to allocation under subsection 116CF(2)?

20. Once the expenditure is allowable under sections 111AC or 111AD (subject to the above comments about the application of section 111C) it is a deduction that relates exclusively to a particular class of assessable income for the purposes of subsection 116CF(1) (even though the expenditure is not incurred in gaining assessable income, it is considered to 'relate exclusively to a particular class of assessable income'). It can therefore be directly allocated to the particular class of assessable income without apportionment under subsection 116CF(2). See Example 2 at paragraph 57.

Are staff 'on-costs' such as long service leave and other provisions, workers' compensation premiums, payroll tax, fringe benefits tax, and actual fringe benefits provided to staff deductible to a life insurance company under sections 111AC and 111AD?

21. The cost to the company of providing fringe benefits to an employee falls within the description of 'similar benefits' contained in paragraphs 111AC(2)(a)(c) and 111AD(3)(a)(c). As to provisions such as long service leave provisions, they are not included in any of the items in the positive lists and would in any case be excluded under subsections 111AC(6) and 111AD(7).

22. Amounts paid by the company in relation to the employment of staff (e.g. payroll tax or workers' compensation premiums) are not a 'benefit' and are therefore not allowable as 'similar benefits'. If the expenses are not expenses of general management, they may be allowable under paragraphs 111AC(2)(e) or 111AD(3)(e) to the extent to which they relate to staff involved in the prescribed activities. The total expense must be apportioned on a reasonable basis: for instance the total amount of payroll tax paid by the company must be apportioned between staff involved in preparing, selling or issuing policies and other staff. Once the total amount has been apportioned on that basis, then if staff are involved in preparing selling and issuing policies as well as in other activities, the apportioned amount must be apportioned again, e.g. on the basis of time spent on the specified activities as a proportion of total time.

What is the meaning of 'commissions' in the positive lists? Does it include reinsurance commissions?

23. It has been argued that payments such as 'participating' or 'experience' commissions paid by a reinsurer to a life insurer are not refunds or amounts in the nature of a refund but rather are included in the term 'commissions' in paragraph (a) of the positive list. We do not agree with that view. The term 'commission' in paragraph (a) is to be interpreted ejusdem generis with the words 'salaries, wages, bonuses, allowances, or similar benefits' being the type of benefits provided to a life insurer's sales force in respect of their selling activities.

What is the meaning of 'preparing, selling, or issuing' policies in paragraph (e) of the positive lists?

24. The three terms refer to different steps in the process of getting policies to the public. The first step refers to the writing and printing of the policy (it does not include expenditure of a revenue nature in developing or engaging in research in relation to policies which is specifically referred to in paragraph (d)). The second step is the selling of the policy and refers to expenses such as advertising expenses and other selling expenses such as sales force expenses which cannot be apportioned under the other paragraphs of the positive list. It would not include 'termination' commissions as these do not relate to the sale of policies. The final step is issuing i.e. the physical act of mailing, sending out or giving out the policy to policyholders.

Are superannuation contributions paid in respect of sales support staff deductible and to what extent?

25. Superannuation contributions are deductible under paragraph (e) of the positive list to the extent to which they relate to staff involved in preparing, selling or issuing policies or collecting premiums (the part of superannuation contributions which is not deductible under that paragraph is not deductible as general management expenses). The amount deductible under paragraph (e) is limited by subsections 111AC(6) and 111AD(7) to the amount which would otherwise have been allowable in the absence of the 1994 amendments (i.e. as limited under sections 82AAC and 111C). See Example 3 at paragraph 58.

Are agency development loans written off after 1 January 1994 allowable deductions under the positive lists?

26. Whether agency development loans written off after 1 January 1994 are allowable deductions depends on whether they are of a capital nature and therefore excluded from the positive lists by subsections 111AC(4) and 111AD(5). This issue is being considered and will be addressed in the final Taxation Determination based on TD94/D47.

Date of effect

27. This Ruling applies to years commencing both before and after its date of issue. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

Explanations

28. The provisions of the 1994 amendments operate to provide 'positive' lists of expenses which are allowable deductions to a life company from 1 January 1994 (sections 111AC and 111AD) and a 'negative' list of expenses which are non-deductible to the company before or after 1 January 1994 (section 112BA).

Effect of the 1994 amendments before 1 January 1994

29. Subsection 111(1) provides that premiums are excluded from the assessable income of a life assurance company. This meant that in the absence of the introduction of section 111A by the Taxation Laws Amendment (Superannuation) Act 1989 and of section 111AA by the Taxation Laws Amendment Act (No.5) 1989 ('the 1989 amendments'), and in the absence of the 1994 amendments, section 51 or other sections would not have allowed a deduction for the cost of obtaining those premiums. Sections 111A and 111AA were introduced in 1989 to allow life assurance companies to claim a deduction for the direct costs of obtaining exempt Australian life assurance premiums, e.g. advertising, commissions and administrative costs. The sections operated by treating superannuation premiums and the investment component of life premiums as assessable income for the purposes of determining allowable deductions under section 51 and the specific deductions provisions in the Act. Section 111A applied to life assurance company superannuation business from the year of income in which 1 July 1988 occurred and section 111AA applied to the investment component of life assurance business from 1 January 1990.

30. The 1994 amendments were introduced to limit the allowable deductions to those originally intended. They operate by denying the operation of sections 111A and 111AA to premiums received on or after 1 January 1994. However, the treating of premiums as assessable income remains in the sections for the purposes of determining deductions from the period from their introduction to their repeal on 1 January 1994.

Section 112BA

31. For the period from the year in which 1 July 1988 occurred to all later years, a list of non-deductible expenses was included under the new section 112BA to expressly deny deductions for expenditure that was not intended to be deductible. The negative list overrides any other provision of the Act and includes:

•

benefits paid or payable under a life assurance policy (see 112BA (2) for items included in 'benefits');

•

reserves for future liabilities;

•

reinsurance premiums;

•

amounts paid for the settlement of a dispute to the policyholder or an associate.

Settlement amounts

32. As to amounts paid or payable in settlement of a dispute about the liability of a life assurance company under a life policy, subsection 112BA (4) gives the term 'associate' in paragraph 112BA(1)(d) the same wide meaning as in subsection 26AAB (14). This is to ensure that amounts paid to a person other than the policyholder are also included in the negative list. Whether interest is included as a non-deductible item under paragraph 112BA(1)(d) will depend on whether it is part of the total amount payable in settlement of the dispute or whether it is payable separately from that amount.

Benefits

33. Subsection 112BA (2) states that the term "benefit" includes an amount paid or payable:

•

in respect of claims, bonuses or annuities under the policy;

•

that is related to the surrender, cancellation, forfeiture, termination or disposal of the policy or any rights under the policy;

•

that is a refund of premiums that are excluded from assessable income of the life assurance company by section 111; or an amount that is in the nature of a refund of such premiums.

34. The reference to benefits does not include any interest payable by a life assurance company in respect of a late claim or benefit under section 57 of the Insurance Contracts Act 1984. In other words, the negative list does not operate to exclude a deduction for interest payable to policyholders for late payment of claims under the Insurance Contracts Act.

35. Another exclusion from the benefits in the negative list is supplementary benefits known as rider benefits attached to life assurance policies that are paid in respect of non-life insurance risks where the premiums received are assessable to the company (subsection 112BA(3)). Examples of rider benefits are accident and disability benefits, sickness benefits and trauma benefits. These supplementary benefits are not considered to be life assurance policies for the purposes of Division 8 and continue to be deductible to life insurance companies.

Reinsurance

36. Paragraph 112BA(1)(c) includes as a non-deductible item, for the period from the year in which 1 July 1988 occurred to all later years of income, premiums paid or payable by a life assurance company in respect of the reinsurance of the whole or any part of a life assurance policy.

37. Paragraph 112BA(2)(v) ensures that an amount that is a refund or an amount in the nature of a refund of a premium that, under section 111, is not assessable as income, is a non-deductible 'benefit' paid under a life assurance policy. This means that any amounts that are, in substance, refunds of premiums or in the nature of refunds of premiums are included in the non-deductible list in subsection 112BA(1) and are therefore not deductible. Examples of these are 'experience' or 'participating' profits or other repayments by a reinsurer back to the life assurance company in respect of premiums paid for reinsurance of a life assurance policy.

38. If the reinsurance premiums paid or payable by a company are not an allowable deduction because of paragraph 112BA(1)(c), the assessable income of a life assurance company does not include reinsurance recoveries or refunds of the reinsurance premiums (subsection 111AB(1)). Subsection 111AB(1) applies from the year of income in which 1 July 1988 occurred to all later years.

Foreign expenses

39. The 1994 amendments operate to ensure that deductions for the foreign costs in deriving foreign premiums are not allowed. The insertion of the new provisions contained in subsections 111A(1A) and 111AA(1A) excludes as deemed assessable premiums, superannuation or life assurance premiums received in respect of policies issued by life assurance companies in the course of a business carried on at or through a permanent establishment in a foreign country. The new provisions also cover non-resident life assurance companies which have derived foreign superannuation or life assurance premiums that are exempt from tax under paragraph 23(r). These new provisions in sections 111A and 111AA apply to premiums received on or after the year of income in which 1 July 1988 occurred for foreign superannuation premiums and on or after 1 January 1990 for foreign life insurance premiums, up to the end of the 1989-90 year of income.

40. For assessments for the 1990-91 year of income up until the repeal of the sections, subsections 111A(3) and 111AA(1B) ensure that the deemed assessable premiums in subsections 111A(1) and 111AA(2) do not include:

(a)

superannuation or life insurance premiums received in respect of eligible non-resident policies, i.e. premiums included in the foreign branch income of an Australian life insurance company which relate to the provision of superannuation or life insurance for the benefit of unrelated policyholders who are not residents of Australia;

(b)

superannuation or life insurance premiums which are exempt from tax under section 23AH, i.e. premiums derived by a resident company from carrying on business at or through a permanent establishment of that company in a foreign ('listed') country; and

(c)

foreign superannuation or life insurance premiums received by a non-resident life insurance company which are exempt from tax in Australia by paragraph 23(r).

From 1 January 1994, sections 111AC and 111AD apply to exclude foreign premiums from superannuation and life assurance premiums for the purpose of calculating deductions under the positive lists.

Section 112

41. The exclusion of foreign premiums from those premiums which were deemed to be assessable income necessitated consequential changes to section 112 to ensure that the same restriction of foreign premiums contained in the 1994 amendments to sections 111A and 111AA apply in section 112.

Actuary's certificate

42. If a life assurance company included foreign life assurance premiums in the premiums to which section 111AA previously applied, the premiums to which the amended section 111AA applies may be different to the premiums on which the life assurance company obtained an actuary's certificate under subsection 111AA(3). In this case, unless the life assurance company lodges an amended return and obtains a new certificate from an actuary in relation to the amended section, section 111AA as amended is taken not to have applied to the investment component of life assurance premiums received by the company in that year and therefore no amount representing the investment component would be deemed assessable income for deduction purposes (subsection 70C(4) of the 1994 amendments).

Effect of the 1994 amendments after 1 January 1994

44. The negative list contained in section 112BA and discussed above expressly overrides any other section of the Act and continues to operate after 1 January 1994. It follows that if an expense which would be allowable under any section including sections 111AC or 111AD is also in the negative list, section 112BA operates to make the expense not allowable.

Sections 111AC and 111AD

45. Section 111AC relates to expenses incurred in connection with getting in superannuation premiums which may be broadly defined as premiums received from the sale of a life policy to a superannuation fund, an ADF, or a PST and which exclude premiums in respect of foreign business, where the investment earnings are exempt from Australian tax.

46. Section 111AD refers to expenses incurred in connection with getting in relevant life insurance premiums, to the extent that the expenses relate to the investment component of those premiums. Such premiums exclude those premiums in respect of foreign business, where the investment earnings are exempt from Australian tax. Also excluded are superannuation premiums, premiums received in respect of certain immediate annuity income and specified roll over amounts.

47. The expenses which are expressly stated to be allowable deductions under section 111AC and section 111AD (i.e. the 'positive lists') are:

(a)

salaries, wages, bonuses, allowances, commissions and similar benefits paid or payable to a salesperson or to a life agent, for the sale, renewal or continuation of superannuation or relevant life policies. Expenses allowable include amounts incurred in obtaining future sales.

(b)

expenditure in recruiting or training salespeople or life agents in selling policies.

(c)

salaries, wages, allowances and similar benefits paid or payable to employees of the life company to the extent to which the expenses relate to the provision of administrative or technical assistance or support to the salesperson or agent.

(d)

expenditure incurred in developing superannuation or relevant life policies or engaging in research in connection with such policies, provided it is not of a capital nature. Whether such expenditure is of a capital or revenue nature is clearly a question of fact.

(e)

any other losses and outgoings to the extent to which they are incurred in preparing, selling or issuing policies or in collecting premiums.

48. The words to the extent to which in paragraphs (c) and (e) clearly mirror the provisions of subsection 51(1) and indicate that a similar apportionment approach is required under those paragraphs. The appropriate basis of apportionment will depend on the individual facts of each case and on the type of expenditure being claimed : thus in some cases, apportionment on time basis may be appropriate, in other cases it may be more relevant to apportion on the basis of volume of business conducted.

49. The words 'preparing, selling or issuing' refer to a series of steps which a life company will follow in order to get their insurance products out to the market. The first step is preparation, ie the writing out and printing phase (after the product has been developed). The second step is the selling of the policies and would include for instance advertising expenses as well as any salespeople's expenses that need apportionment (and are therefore not allowable under paragraphs (a)(b)(d) above). Issuing refers to the physical action of distributing the policies to the policy holder (e.g. mailing out).

50. The expenses in paragraphs (a), (b) and (d) have to be exclusively or solely incurred as they contain no apportioning mechanism. Expenditure which relates to more than one purpose is not deductible under these paragraphs but may be apportioned under paragraphs (c) or (e).

51. Unlike sections 111A and 111AA which treated certain exempt premiums as assessable income for the purpose of determining deductions under the other provisions of the Act (such as sections 51, 53, 54 etc.), sections 111AC and 111AD allow a deduction for the expenses specified in the sections. After the 1994 amendments, there can be no deduction under section 51 for the cost of obtaining life insurance premiums as these premiums continue to be exempt premiums under section 111 for section 51 purposes.

52. However, subsections 111AC(3) and 111AD(4) deem superannuation premiums, and the investment component of a life premium to be assessable income for the purpose of determining deductions under other specific provisions of the Act (other than sections 51, 111AC and 111AD). That would include, for example, deductions for depreciation (section 54), rates (section 72), superannuation contributions for employees (section 82AAC) and capital write-offs for the costs of certain buildings under Division 10D.

53. The positive lists of expenses which may be allowable to a company under section 111AC and 111AD expressly exclude general management expenses allowable under sections 113 or 113A (subsections 111AC(5) and 111AD(6)) as well as expenses of a capital nature, other than expenses that may be allowable under a provision of the Act other than sections 51, 111AC or 111AD.

54. The positive lists are subject to subsections 111AC(6) and 111AD(7) which provide that expenses, losses or outgoings or part thereof which would not have been allowable before the 1994 amendments (e.g. club fees, entertainment, the excess of superannuation contributions above the statutory limit contained in section 82AAC) are still not allowable. The two subsections operate by assuming that the 1994 amendments had not been enacted and that sections 111A and 111AA continued to apply. If, based on these assumptions, a deduction was not allowable (because, for example, section 51AE precluding deductibility of entertainment expenses applied), then it is still not allowable under the new provisions. Thus if a deduction was not allowable before 1 January 1994 including under sections 111A and 111AA, then it will not be allowable under the new provisions.

55. If expenditure is deductible under subsections 111AC(1) and 111AD(2) as well as under a specific provision of the Act (when read with subsections 111AC(3) and 111AD(4)), the deduction is allowable under sections 111AC and 111AD and not the specific provision. In these circumstances, subsections 111AC(6) and 111AD(7) will operate to limit any deduction under sections 111AC and 111AD to the same amount that would have been allowable under the specific provision of the Act.

Examples

Example 1 - section 113A

56. A life company rents a building occupied by staff who only administer superannuation policies and pays annual rent. If the rent is treated as a general management expense and relates exclusively to assessable income (because it relates solely to superannuation business), it is deductible under section 113A. However, if the building was also used by staff involved in the investment of the superannuation policies and in the gaining of investment income, then to that extent the rent would be deductible under section 51 and the remainder would be deductible under section 113A.

Example 2 - section 116CF allocation

57. Some of the administrative staff of a life company give assistance to the company's sales people who sell superannuation policies and insurance bonds. The administrative staff spend an equal amount of time on superannuation policies and insurance bonds and their salaries for the 1994 year total $500 000. The salary can be apportioned on the time basis as follows: $250 000 falls within under paragraph 111AC(2)(c) and $250 000 fall within paragraph 111AD(3)(c). The deductions are exclusively incurred in gaining the relevant class of assessable income for the purposes of subsection 116CF(1).

Example 3 - superannuation contributions

58. During the 1994 year, a life company makes superannuation contributions totalling $10 000 for staff involved in providing technical support to its superannuation sales force. As the company is entitled to a deduction under section 82AAC (read with subsection 111AC(3)) as well as under paragraph 111AC(2)(c), the latter provision applies. The paragraph 111AC(2)(c) deduction is limited by subsection 111AC(6) to the deduction to which it would have been entitled in the absence of the 1994 amendments, i.e. to the deduction as reduced under sections 82AAC and 111C.

Commissioner of Taxation
11 August 1994

Attachment A

Interaction of Division 8 provisions

References

ATO references:
NO 94/5277-0
BO

Subject References:
allowable deductions
friendly society
general management expenses
life assurance company
life assurance premiums
life insurance
registered organisation
superannuation premiums

Legislative References:
ITAA 111A
ITAA 111AA
ITAA 111AD
ITAA 111AB
ITAA 112BA
ITAA 116HAC
ITAA 116HAD
ITAA 51
ITAA 82AAC
ITAA