Draft Taxation Determination

TD 94/D37

Income tax: what should an actuary take into account in certifying, for the purposes of subsection 112C(1), that the assets of a life insurance company's permanent establishments in foreign countries are not excessive in relation to liabilities referable to policies issued in the course of carrying on those permanent establishments?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 96/29.

FOI status:

draft only - for comment

Preamble

1. Section 112C was introduced by Taxation Laws Amendment Act (No. 2) 1992 to exempt from Australian tax the foreign income applicable to eligible non-resident policies issued by an Australian life company in the course of carrying on a business of life insurance at or through a permanent establishment in a foreign country. In this Determination the policies issued by the permanent establishment are referred to as 'foreign policies'. Subsection 112C(1) provides that the amount of income to which the section applies does not extend to income arising from assets which were not held to cover liabilities referable to foreign policies.

2. In determining whether assets of the foreign operations exceed those required to cover liabilities of foreign policies, the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 2) 1992 states:

'A statement from a professionally qualified actuary setting out the calculated liabilities in relation to the life policies issued by the permanent establishments, and certifying that the assets shown in the financial statements of the permanent establishments are not excessive in relation to those liabilities, would generally be accepted in this regard.'

The purpose of this Determination is to set out the Commissioner's view of which assets are not considered to be assets held to cover liabilities referable to foreign policies for section 112C purposes

3. It is considered that only assets held to cover liabilities referable to foreign policies are not taken into account in reducing the amount of income of a permanent establishment for the purposes of section 112C.

4. The following are not considered to be assets held to cover liabilities referable to foreign policies and should not be taken into account by an actuary in determining the value of such assets for 112C purposes:

i)

funds to enable new business to be generated

ii)

funds to provide initial capital

iii)

funds for special contingencies

iv)

capital adequacy reserves

v)

prudential requirements of foreign regulatory authorities

vi)

reserves held for any capital guaranteed commitments or for terminal bonus commitments in relation to those foreign policies.

5. Where an actuary has determined that the assets held by the permanent establishment are not in excess of those required to cover liabilities referable to foreign policies, the actuary should certify accordingly. Where the actuary has determined that the assets are excessive, he should ascertain the assets of the permanent establishment held to cover liabilities referable to foreign policies, and certify accordingly.

Commissioner of Taxation
7/4/94

References

BO Insurance Industry Cell

Subject References:
Assets of foreign permanent establishments

Legislative References:
ITAA 112C
ITAA 112A(5)