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Income Tax Assessment Act 1997

Authoritative Version
  • - C2016C00680
  • In force - Superseded Version
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Act No. 38 of 1997 as amended, taking into account amendments up to Tax Laws Amendment (Tax Incentives for Innovation) Act 2016
An Act about income tax and related matters
Administered by: Treasury
General Comments: This compilation is affected by a retrospective amendment. Please see the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Act 2017 (Act No. 15, 2017) for details.
Registered 30 Jun 2016
Start Date 30 Jun 2016
End Date 30 Jun 2016

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 157

Compilation date:                              30 June 2016

Includes amendments up to:            Act No. 54, 2016

Registered:                                         30 June 2016

This compilation is in 11 volumes

Volume 1:       sections 1‑1 to 36‑55

Volume 2:       sections 40‑1 to 55‑10

Volume 3:       sections 58‑1 to 122‑205

Volume 4:       sections 124‑1 to 152‑430

Volume 5:       sections 164‑1 to 220‑800

Volume 6:       sections 230‑1 to 312‑15

Volume 7:       sections 315‑1 to 420‑70

Volume 8:       sections 615‑1 to 727‑910

Volume 9:       sections 768‑1 to 995‑1

Volume 10:     Endnotes 1 to 3

Volume 11:     Endnote 4

Each volume has its own contents

 

This compilation includes a commenced amendment made by Act No. 118, 2009

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 30 June 2016 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Legislation Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the series page on the Legislation Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the series page on the Legislation Register for the compiled law.

Self‑repealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

  

  

  


Contents

Chapter 3—Specialist liability rules                                                           1

Part 3‑32—Co‑operatives and mutual entities                                                      1

Division 315—Demutualisation of private health insurers                       1

Guide to Division 315                                                                                                1

315‑1..................... What this Division is about................................................. 1

Subdivision 315‑A—Capital gains and losses connected with a demutualisation of a private health insurer to be disregarded                                                                                    2

Rules for policy holders                                                                                            3

315‑5..................... Policy holders to disregard capital gains and losses related to demutualisation of private health insurer  3

315‑10................... Effect on the legal personal representative or beneficiary.... 3

315‑15................... Demutualisations to which this Division applies................ 3

315‑20................... What assets are covered...................................................... 4

Rules for demutualising health insurer                                                                4

315‑25................... Demutualising health insurers to disregard capital gains and losses related to demutualisation                4

Rules for other entities                                                                                              5

315‑30................... Other entities to disregard capital gains and losses related to demutualisation          5

Subdivision 315‑B—Cost base of certain shares and rights in private health insurers                5

315‑80................... Cost base and acquisition time of demutualisation assets.... 6

315‑85................... Demutualisation asset......................................................... 6

315‑90................... Participating policy holders................................................. 7

Subdivision 315‑C—Lost policy holders trust                                                    8

315‑140................. Lost policy holders trust..................................................... 8

315‑145................. CGT treatment of demutualisation assets in lost policy holders trust       9

315‑150................. Roll‑over where assets transferred to lost policy holder..... 9

315‑155................. Trustee assessed if assets dealt with not for benefit of lost policy holder 10

315‑160................. Subdivision 126‑E does not apply to lost policy holders trust 10

Subdivision 315‑D—Special cost base rules for certain shares and rights in holding companies             10

315‑210................. Cost base for shares and rights in certain holding companies  11

Subdivision 315‑E—Special CGT rule for legal personal representatives and beneficiaries    12

315‑260................. Special CGT rule for legal personal representatives and beneficiaries      13

Subdivision 315‑F—Non‑CGT consequences of demutualisation                13

315‑310................. General taxation consequences of issue of demutualisation assets etc.     14

Division 316—Demutualisation of friendly society health or life insurers           15

Guide to Division 316                                                                                              15

316‑1..................... What this Division is about............................................... 15

Subdivision 316‑A—Application                                                                          15

316‑5..................... Application of this Division.............................................. 15

Subdivision 316‑B—Capital gains and losses connected with the demutualisation       16

Guide to Subdivision 316‑B                                                                                   16

316‑50................... What this Subdivision is about......................................... 16

Gains and losses of members, insured entities and successors                      17

316‑55................... Disregarding capital gains and losses, except some involving receipt of money      17

316‑60................... Taking account of some capital gains and losses involving receipt of money          18

316‑65................... Valuation factor for sections 316‑60, 316‑105 and 316‑165 19

316‑70................... Value of the friendly society............................................. 20

Friendly society’s gains and losses                                                                       22

316‑75................... Disregarding friendly society’s capital gains and losses... 22

Other entities’ gains and losses                                                                             22

316‑80................... Disregarding other entities’ capital gains and losses......... 22

Subdivision 316‑C—Cost base of shares and rights issued under the demutualisation                23

Guide to Subdivision 316‑C                                                                                   23

316‑100................. What this Subdivision is about......................................... 23

316‑105................. Cost base and time of acquisition of shares and certain rights issued under demutualisation   23

316‑110................. Demutualisation assets...................................................... 24

316‑115................. Entities to which section 316‑105 applies......................... 25

Subdivision 316‑D—Lost policy holders trust                                                  25

Guide to Subdivision 316‑D                                                                                   25

316‑150................. What this Subdivision is about......................................... 25

Application                                                                                                                 27

316‑155................. Lost policy holders trust................................................... 27

Effects of CGT events happening to interests and assets in trust                 28

316‑160................. Disregarding beneficiaries’ capital gains and losses, except some involving receipt of money                28

316‑165................. Taking account of some capital gains and losses involving receipt of money by beneficiaries 28

316‑170................. Roll‑over where shares or rights to acquire shares transferred to beneficiary of lost policy holders trust.......................................................................................... 29

316‑175................. Trustee assessed if shares or rights dealt with not for benefit of beneficiary of lost policy holders trust 30

316‑180................. Subdivision 126‑E does not apply.................................... 30

Subdivision 316‑E—Special CGT rules for legal personal representatives and beneficiaries  31

316‑200................. Demutualisation assets not owned by deceased but passing to beneficiary in deceased estate 31

316‑205................. Interest in lost policy holders trust not owned by deceased but passing to beneficiary in deceased estate.......................................................................................... 32

Subdivision 316‑F—Non‑CGT consequences of the demutualisation         32

Guide to Subdivision 316‑F                                                                                    32

316‑250................. What this Subdivision is about......................................... 32

316‑255................. General taxation consequences of issue of demutualisation assets etc.     33

316‑260................. Franking debits to stop the friendly society and its subsidiaries having franking surpluses     34

316‑265................. Franking debits to negate franking credits from some distributions to friendly society and subsidiaries 34

316‑270................. Franking debits to negate franking credits from post‑demutualisation payments of pre‑demutualisation tax.......................................................................................... 35

316‑275................. Franking credits to negate franking debits from refunds of tax paid before demutualisation    35

Part 3‑35—Insurance business                                                                                     37

Division 320—Life insurance companies                                                         37

Guide to Division 320                                                                                              37

320‑1..................... What this Division is about............................................... 37

Operative provisions                                                                                               39

Subdivision 320‑A—Preliminary                                                                         39

320‑5..................... Object of Division............................................................ 39

Subdivision 320‑B—What is included in a life insurance company’s assessable income            40

Guide to Subdivision 320‑B                                                                                   40

320‑10................... What this Subdivision is about......................................... 40

Operative provisions                                                                                               40

320‑15................... Assessable income—various amounts.............................. 40

320‑30................... Assessable income—special provision for certain income years              43

320‑35................... Exempt income................................................................. 43

320‑37................... Non‑assessable non‑exempt income................................. 44

320‑45................... Tax treatment of gains or losses from CGT events in relation to complying superannuation assets         46

Subdivision 320‑C—Deductions and capital losses                                          47

Guide to Subdivision 320‑C                                                                                   47

320‑50................... What this Subdivision is about......................................... 47

Operative provisions                                                                                               48

320‑55................... Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from complying superannuation assets...................................... 48

320‑60................... Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from segregated exempt assets.................................................. 49

320‑65................... Deduction for life insurance premiums in respect of life insurance policies that provide for participating or discretionary benefits........................................................ 49

320‑70................... No deduction for life insurance premiums in respect of certain life insurance policies payable only on death or disability........................................................................... 49

320‑75................... Deduction for ordinary investment policies...................... 49

320‑80................... Deduction for certain claims paid under life insurance policies                50

320‑85................... Deduction for increase in value of liabilities under net risk components of life insurance policies           51

320‑87................... Deduction for assets transferred from or to complying superannuation asset pool  52

320‑100................. Deduction for life insurance premiums paid under certain contracts of reinsurance 53

320‑105................. Deduction for assets transferred to segregated exempt assets  53

320‑107................. Deductions for increased amount of lump sum death benefit 53

320‑110................. Deduction for interest credited to income bonds............... 54

320‑111................. Deduction for funeral policy payout................................. 55

320‑112................. Deduction for scholarship plan payout............................. 55

320‑115................. No deduction for amounts credited to RSAs.................... 56

320‑120................. Capital losses from assets other than complying superannuation assets or segregated exempt assets      56

320‑125................. Capital losses from complying superannuation assets...... 56

Subdivision 320‑D—Income tax, taxable income and tax loss of life insurance companies       57

Guide to Subdivision 320‑D                                                                                   57

320‑130................. What this Subdivision is about......................................... 57

320‑131................. Overview of Subdivision.................................................. 57

General rules                                                                                                             59

320‑133................. Object of Subdivision....................................................... 59

320‑134................. Income tax of a life insurance company............................ 60

320‑135................. Taxable income and tax loss of each of the 2 classes........ 61

Taxable income and tax loss of life insurance companies                             61

320‑137................. Taxable income—complying superannuation class........... 61

320‑139................. Taxable income—ordinary class....................................... 64

320‑141................. Tax loss—complying superannuation class...................... 64

320‑143................. Tax loss—ordinary class.................................................. 65

320‑149................. Provisions that apply only in relation to the ordinary class 66

Subdivision 320‑E—No‑TFN contributions of life insurance companies that are RSA providers            67

Guide to Subdivision 320‑E                                                                                   67

320‑150................. What this Subdivision is about......................................... 67

Operative provisions                                                                                               67

320‑155................. Subdivisions 295‑I and 295‑J apply to companies that are RSA providers             67

Subdivision 320‑F—Complying superannuation asset pool                          68

Guide to Subdivision 320‑F                                                                                    68

320‑165................. What this Subdivision is about......................................... 68

Operative provisions                                                                                               68

320‑170................. Establishment of complying superannuation asset pool.... 68

320‑175................. Valuations of complying superannuation assets and complying superannuation liabilities for each valuation time................................................................................... 70

320‑180................. Consequences of a valuation under section 320‑175........ 71

320‑185................. Transfer of assets to complying superannuation asset pool otherwise than as a result of a valuation under section 320‑175................................................................ 72

320‑190................. Complying superannuation liabilities................................ 73

320‑195................. Transfer of assets and payment of amounts from a complying superannuation asset pool otherwise than as a result of a valuation under section 320‑175...................... 74

320‑200................. Consequences of transfer of assets to or from complying superannuation asset pool              75

Subdivision 320‑H—Segregation of assets to discharge exempt life insurance policy liabilities              77

Guide to Subdivision 320‑H                                                                                   77

320‑220................. What this Subdivision is about......................................... 77

Operative provisions                                                                                               78

320‑225................. Segregation of assets for purpose of discharging exempt life insurance policy liabilities         78

320‑230................. Valuations of segregated exempt assets and exempt life insurance policy liabilities for each valuation time.......................................................................................... 79

320‑235................. Consequences of a valuation under section 320‑230........ 80

320‑240................. Transfer of assets to segregated exempt assets otherwise than as a result of a valuation under section 320‑230.......................................................................................... 81

320‑245................. Exempt life insurance policy liabilities.............................. 82

320‑246................. Exempt life insurance policy............................................. 83

320‑247................. Policy split into an exempt life insurance policy and another life insurance policy   86

320‑250................. Transfer of assets and payment of amounts from segregated exempt assets otherwise than as a result of a valuation under section 320‑230....................................... 87

320‑255................. Consequences of transfer of assets to or from segregated exempt assets 88

Subdivision 320‑I—Transfers of business                                                         91

Guide to Subdivision 320‑I                                                                                     91

320‑300................. What this Subdivision is about......................................... 91

Operative provisions                                                                                               92

320‑305................. When this Subdivision applies.......................................... 92

320‑310................. Special deductions and amounts of assessable income..... 92

320‑315................. Complying superannuation asset pool and segregated exempt assets       93

320‑320................. Certain amounts treated as life insurance premiums.......... 93

320‑325................. Friendly societies.............................................................. 94

320‑330................. Immediate annuities.......................................................... 94

320‑335................. Parts of assets treated as separate assets........................... 94

320‑340................. Continuous disability policies........................................... 95

320‑345................. Exemption of management fees........................................ 96

Division 321—General insurance companies and companies that self‑insure in respect of workers’ compensation liabilities                                                                    97

Subdivision 321‑A—Provision for, and payment of, claims by general insurance companies  97

321‑10................... Assessable income to include amount for reduction in outstanding claims liability  97

321‑15................... Deduction for increase in outstanding claims liability....... 98

321‑20................... How value of outstanding claims liability is worked out.. 98

321‑25................... Deduction for claims paid during current year.................. 99

Subdivision 321‑B—Premium income of general insurance companies   99

321‑45................... Assessable income to include gross premiums................. 99

321‑50................... Assessable income to include amount for reduction in value of unearned premium reserve    99

321‑55................... Deduction for increase in value of unearned premium reserve 100

321‑60................... How value of unearned premium reserve is worked out. 100

Subdivision 321‑C—Companies that self‑insure in respect of workers’ compensation liabilities             102

321‑80................... Assessable income to include amount for reduction in outstanding claims liability  102

321‑85................... Deduction for outstanding claims liability....................... 102

321‑90................... How value of outstanding claims liability is worked out 103

321‑95................... Deductions for claims paid during current year.............. 103

Division 322—Assistance for policyholders with insolvent general insurers      104

Guide to Division 322                                                                                            104

322‑1..................... What this Division is about............................................. 104

Subdivision 322‑A—HIH rescue package                                                        104

322‑5..................... Rescue payments treated as insurance payments by HIH 104

322‑10................... HIH Trust exempt from tax............................................ 105

322‑15................... Certain capital gains and capital losses disregarded........ 105

Subdivision 322‑B—Tax treatment of entitlements under financial claims scheme     105

Guide to Subdivision 322‑B                                                                                 105

322‑20................... What this Subdivision is about....................................... 105

Operative provisions                                                                                             106

322‑25................... Payment of entitlement under financial claims scheme treated as payment from insurer          106

322‑30................... Disposal of rights against insurer to APRA and meeting of financial claims scheme entitlement have no CGT effects............................................................................. 107

Part 3‑45—Rules for particular industries and occupations                   108

Division 328—Small business entities                                                               108

Guide to Division 328                                                                                            108

328‑5..................... What this Division is about............................................. 108

328‑10................... Concessions available to small business entities............. 109

Subdivision 328‑B—Objects of this Division                                                   110

328‑50................... Objects of this Division.................................................. 110

Subdivision 328‑C—What is a small business entity                                     111

Guide to Subdivision 328‑C                                                                                 111

328‑105................. What this Subdivision is about....................................... 111

Operative provisions                                                                                             112

328‑110................. Meaning of small business entity.................................... 112

328‑115................. Meaning of aggregated turnover.................................... 114

328‑120................. Meaning of annual turnover........................................... 115

328‑125................. Meaning of connected with an entity............................... 116

328‑130................. Meaning of affiliate......................................................... 119

Subdivision 328‑D—Capital allowances for small business entities         120

Guide to Subdivision 328‑D                                                                                 120

328‑170................. What this Subdivision is about....................................... 120

Operative provisions                                                                                             121

328‑175................. Calculations for depreciating assets................................ 121

328‑180................. Assets costing less than $1,000...................................... 124

328‑185................. Pooling........................................................................... 126

328‑190................. Calculation...................................................................... 127

328‑195................. Opening pool balance..................................................... 128

328‑200................. Closing pool balance....................................................... 129

328‑205................. Estimate of taxable use.................................................... 130

328‑210................. Low pool value............................................................... 132

328‑215................. Disposal etc. of depreciating assets................................. 133

328‑220................. What happens if you are not a small business entity or do not choose to use this Subdivision for an income year................................................................................. 134

328‑225................. Change in business use................................................... 134

328‑230................. Estimate where deduction denied.................................... 137

328‑235................. Interaction with Divisions 85 and 86.............................. 138

Special rules about roll‑overs                                                                             138

328‑243................. Roll‑over relief................................................................ 138

328‑245................. Consequences of roll‑over.............................................. 139

328‑247................. Pool deductions.............................................................. 139

328‑250................. Deductions for assets first used in BAE year................. 140

328‑253................. Deductions for cost addition amounts............................. 142

328‑255................. Closing pool balance etc. below zero.............................. 143

328‑257................. Taxable use..................................................................... 144

Subdivision 328‑E—Trading stock for small business entities                   144

Guide to Subdivision 328‑E                                                                                 144

328‑280................. What this Subdivision is about....................................... 144

Operative provisions                                                                                             145

328‑285................. Trading stock for small business entities........................ 145

328‑295................. Value of trading stock on hand....................................... 145

Subdivision 328‑F—Small business income tax offset                                  146

Guide to Subdivision 328‑F                                                                                  146

328‑350................. What this Subdivision is about....................................... 146

Operative provisions                                                                                             147

328‑355................. Entitlement to the small business income tax offset........ 147

328‑360................. Amount of your tax offset.............................................. 147

328‑365................. Net small business income.............................................. 148

328‑370................. Relevant attributable deductions...................................... 148

328‑375................. Modification if you are under 18 years old..................... 149

Subdivision 328‑G—Restructures of small businesses                                  150

Guide to Subdivision 328‑G                                                                                 150

328‑420................. What this Subdivision is about....................................... 150

Object of this Subdivision                                                                                     150

328‑425................. Object of this Subdivision.............................................. 150

Requirements for a roll‑over under this Subdivision                                    151

328‑430................. When a roll‑over is available........................................... 151

328‑435................. Genuine restructures—safe harbour rule........................ 152

328‑440................. Ultimate economic ownership—discretionary trusts....... 152

328‑445................. Residency requirement.................................................... 153

Consequences of a roll‑over under this Subdivision                                      153

328‑450................. Small business transfers not to affect income tax positions 153

328‑455................. Effect of small business restructures on transferred cost of assets           154

328‑460................. Effect of small business restructures on acquisition times of pre‑CGT assets          155

328‑465................. New membership interests as consideration for transfer of assets           155

328‑470................. Membership interests affected by transfers of assets...... 156

328‑475................. Small business restructures involving assets already subject to small business roll‑over         156

Division 355—Research and Development                                                   158

Guide to Division 355                                                                                            158

355‑1..................... What this Division is about............................................. 158

Subdivision 355‑A—Object                                                                                  159

355‑5..................... Object............................................................................. 159

Subdivision 355‑B—Meaning of R&D activities and other terms             159

355‑20................... R&D activities................................................................. 160

355‑25................... Core R&D activities........................................................ 160

355‑30................... Supporting R&D activities.............................................. 161

355‑35................... R&D entities................................................................... 161

Subdivision 355‑C—Entitlement to tax offset                                                 162

355‑100................. Entitlement to tax offset.................................................. 162

355‑105................. Deductions under this Division are notional only........... 164

355‑110................. Notional deductions include prepaid expenditure............ 165

Subdivision 355‑D—Notional deductions for R&D expenditure                166

355‑200................. What this Subdivision is about....................................... 166

355‑205................. When notional deductions for R&D expenditure arise.... 166

355‑210................. Conditions for R&D activities........................................ 167

355‑215................. R&D activities conducted by a permanent establishment for other parts of the body corporate               168

355‑220................. R&D activities conducted for a foreign entity................. 169

355‑225................. Expenditure that cannot be notionally deducted.............. 171

Subdivision 355‑E—Notional deductions for decline in value of depreciating assets used for R&D activities     172

355‑300................. What this Subdivision is about....................................... 172

355‑305................. When notional deductions for decline in value arise....... 172

355‑310................. Notional application of Division 40................................ 173

355‑315................. Balancing adjustments—assets only used for R&D activities  174

Subdivision 355‑F—Integrity Rules                                                                  176

355‑400................. Expenditure incurred while not at arm’s length............... 176

355‑405................. Expenditure not at risk.................................................... 177

355‑410................. Disposal of R&D results................................................ 178

355‑415................. Reducing deductions to reflect mark‑ups within groups. 179

Subdivision 355‑G—Clawback of R&D recoupments                                  181

355‑430................. What this Subdivision is about....................................... 181

355‑435................. When extra income tax is payable................................... 181

355‑440................. Entity receives government recoupment.......................... 182

355‑445................. Recoupment could relate to R&D activities..................... 182

355‑450................. Amount on which extra income tax is payable................ 182

Subdivision 355‑H—Feedstock adjustments                                                    184

355‑460................. What this Subdivision is about....................................... 184

355‑465................. Feedstock adjustment to assessable income.................... 184

355‑470................. Feedstock revenue........................................................... 185

355‑475................. Application to connected entities and affiliates................ 186

Subdivision 355‑I—Application to earlier income year R&D expenditure incurred to associates           186

355‑480................. Notional deductions for expenditure incurred to associate in earlier income years   186

Subdivision 355‑J—Application to R&D partnerships                                 188

355‑500................. What this Subdivision is about....................................... 188

355‑505................. Meaning of R&D partnership and partner’s proportion 188

355‑510................. R&D partnership expenditure on R&D activities............ 189

355‑515................. R&D activities conducted by or for an R&D partnership 189

355‑520................. When notional deductions arise for decline in value of depreciating assets of R&D partnerships            190

355‑525................. Balancing adjustments for R&D partnership assets only used for R&D activities   192

355‑530................. Implications for partner’s aggregated turnover............... 194

355‑535................. Disposal of R&D results for R&D partnerships............. 194

355‑540................. Application of recoupment rules..................................... 195

355‑545................. Relevance for net income, and losses, of the R&D partnership                196

Subdivision 355‑K—Application to Cooperative Research Centres         196

355‑580................. When notional deductions for CRC contributions arise.. 197

Subdivision 355‑W—Other matters                                                                  198

355‑705................. Effect of findings by Innovation Australia...................... 198

355‑710................. Amendment of assessments............................................ 200

355‑715................. Implications for other deductions and tax offsets............ 201

355‑720................. Certain related amounts may be reduced if notional deductions exceeded $100 million           202

355‑750................. Review of rate when notional deductions exceed $100 million                204

Division 376—Films generally (tax offsets for Australian production expenditure)      205

Subdivision 376‑A—Guide to Division 376                                                     205

376‑1..................... What this Division is about............................................. 205

376‑2..................... Key features of the tax offsets for Australian production expenditure on films        205

376‑5..................... Structure of this Division................................................ 206

Subdivision 376‑B—Tax offsets for Australian expenditure in making a film              207

Refundable tax offset for Australian expenditure in making a film (location offset)  208

376‑10................... Film production company entitled to refundable tax offset for Australian expenditure in making a film (location offset)............................................................... 208

376‑15................... Amount of the location offset......................................... 209

376‑20................... Minister must issue certificate for a film for the location offset                209

376‑25................... Meaning of documentary................................................ 212

376‑30................... Minister to determine a company’s qualifying Australian production expenditure for the location offset........................................................................................ 213

Refundable tax offset for post, digital and visual effects production for a film (PDV offset)    213

376‑35................... Film production company entitled to refundable tax offset for post, digital and visual effects production for a film (PDV offset)........................................................... 213

376‑40................... Amount of the PDV offset............................................. 215

376‑45................... Minister must issue certificate for a film for the PDV offset 215

376‑50................... Minister to determine a company’s qualifying Australian production expenditure for the PDV offset    217

Refundable tax offset for Australian expenditure in making an Australian film (producer offset)         218

376‑55................... Film production company entitled to refundable tax offset for Australian expenditure in making an Australian film (producer offset)...................................................... 218

376‑60................... Amount of the producer offset........................................ 220

376‑65................... Film authority must issue certificate for an Australian film for the producer offset  220

376‑70................... Determination of content of film..................................... 226

376‑75................... Film authority to determine a company’s qualifying Australian production expenditure for the producer offset........................................................................................ 226

Subdivision 376‑C—Production expenditure and qualifying Australian production expenditure           227

Production expenditure—common rules                                                         228

376‑125................. Production expenditure—general test............................. 228

376‑130................. Production expenditure—special qualifying Australian production expenditure      230

376‑135................. Production expenditure—specific exclusions................. 230

Production expenditure—special rules for the location offset                   233

376‑140................. Production expenditure—special rules for the location offset  233

Qualifying Australian production expenditure—common rules               233

376‑145................. Qualifying Australian production expenditure—general test 233

376‑150................. Qualifying Australian production expenditure—specific inclusions        233

376‑155................. Qualifying Australian production expenditure—specific exclusions        235

376‑160................. Qualifying Australian production expenditure—treatment of services embodied in goods      236

Qualifying Australian production expenditure—special rules for the location offset and the PDV offset             236

376‑165................. Qualifying Australian production expenditure—special rules for the location offset and the PDV offset........................................................................................ 236

Qualifying Australian production expenditure—special rules for the producer offset               238

376‑170................. Qualifying Australian production expenditure—special rules for the producer offset              238

Expenditure generally—common rules                                                           242

376‑175................. Expenditure to be worked out on an arm’s length basis.. 242

376‑180................. Expenditure incurred by prior production companies..... 243

376‑185................. Expenditure to be worked out excluding GST................ 244

Subdivision 376‑D—Certificates for films and other matters                    244

376‑230................. Production company may apply for certificate................ 245

376‑235................. Notice of refusal to issue certificate................................ 246

376‑240................. Issue of certificate........................................................... 246

376‑245................. Revocation of certificate.................................................. 247

376‑250................. Notice of decision or determination................................ 248

376‑255................. Review of decisions by the Administrative Appeals Tribunal  249

376‑260................. Minister may make rules about the location offset and the PDV offset    250

376‑265................. Film authority may make rules about the producer offset 251

376‑270................. Amendment of assessments............................................ 252

376‑275................. Review in relation to certain production levels................ 252

Division 380—National Rental Affordability Scheme                             253

Guide to Division 380                                                                                            253

380‑1..................... What this Division is about............................................. 253

Subdivision 380‑A—National Rental Affordability Scheme Tax Offset 253

NRAS certificates issued to individuals, corporate tax entities and superannuation funds         254

380‑5..................... Claims by individuals, corporate tax entities and superannuation funds   254

NRAS certificates issued to NRAS approved participants                           255

380‑10................... Members of NRAS consortiums—individuals, corporate tax entities and superannuation funds            255

380‑11................... Elections by NRAS approved participants...................... 256

380‑12................... Elections by NRAS approved participants—tax offsets. 257

380‑13................... Elections by NRAS approved participants—special rule for partnerships and trustees            258

380‑14................... Members of NRAS consortiums—partnerships and trustees  259

NRAS certificates issued to partnerships and trustees                                  260

380‑15................... Entities to whom NRAS rent flows indirectly................ 260

380‑16................... Elections by NRAS approved participants that are partnerships or trustees             261

380‑17................... Elections by NRAS approved participants that are partnerships or trustees—tax offsets         262

380‑18................... Elections by NRAS approved participants that are partnerships or trustees—special rule for partnerships and trustees............................................................................ 264

380‑20................... Trustee of a trust that does not have net income for an income year         265

380‑25................... When NRAS rent flows indirectly to or through an entity 266

380‑30................... Share of NRAS rent....................................................... 268

Miscellaneous                                                                                                          271

380‑32................... Amended certificates....................................................... 271

Subdivision 380‑B—Payments made in relation to the National Rental Affordability Scheme etc.         272

380‑35................... Payments made and non‑cash benefits provided in relation to the National Rental Affordability Scheme........................................................................................ 272

Division 385—Primary production                                                                   273

Guide to Division 385                                                                                            273

385‑1..................... What this Division is about............................................. 273

385‑5..................... Where to find some other rules relevant to primary producers 273

Subdivision 385‑E—Primary producer can elect to spread or defer tax on profit from forced disposal or death of live stock                                                                                     274

Guide to Subdivision 385‑E                                                                                 274

385‑90................... What this Subdivision is about....................................... 274

385‑95................... Basic principles for elections under this Subdivision...... 275

Operative provisions                                                                                             275

385‑100................. Cases where you can make an election........................... 275

385‑105................. Election to spread tax profit over 5 years........................ 277

385‑110................. Alternative election to defer tax profit and reduce cost of replacement live stock     277

385‑115................. Your assessable income includes an amount for replacement live stock you breed  278

385‑120................. Purchase price of replacement live stock is reduced........ 278

385‑125................. Alternative election because of bovine tuberculosis has effect over 10 years not 5  279

Subdivision 385‑F—Insurance for loss of live stock or trees                      280

385‑130................. Insurance for loss of live stock or trees.......................... 280

Subdivision 385‑G—Double wool clips                                                             280

385‑135................. Election to defer including profit on second wool clip.... 280

Subdivision 385‑H—Rules that apply to all elections made under Subdivisions 385‑E, 385‑F and 385‑G              281

385‑145................. Partnerships and trusts.................................................... 282

385‑150................. Time for making election................................................ 282

385‑155................. Amounts are assessable income from carrying on the primary production business                282

385‑160................. Effect of certain events on election.................................. 282

385‑163................. Disentitling events.......................................................... 283

385‑165................. New partnership can elect to be treated as same entity as old partnership                285

385‑170................. New partnership can elect to take advantage of election made by former owner of the business             285

Division 392—Long‑term averaging of primary producers’ tax liability            286

Guide to Division 392                                                                                            286

392‑1..................... What this Division is about............................................. 286

392‑5..................... Overview of averaging process...................................... 286

Subdivision 392‑A—Is your income tax affected by averaging?              289

392‑10................... Individuals who carry on a primary production business 289

392‑15................... Meaning of basic taxable income................................... 290

392‑20................... Trust beneficiaries taken to be carrying on primary production business 291

392‑22................... Trustee may choose that a beneficiary is a chosen beneficiary of the trust               292

392‑25................... Choosing not to have your income tax averaged............. 293

Subdivision 392‑B—What kind of averaging adjustment must you make? 294

Guide to Subdivision 392‑B                                                                                 294

392‑30................... What this Subdivision is about....................................... 294

Tax offset or extra income tax                                                                           294

392‑35................... Will you get a tax offset or have to pay extra income tax? 294

How to work out the comparison rate                                                               296

392‑40................... Identify income years for averaging your basic taxable income               296

392‑45................... Work out your average income for those years............... 297

392‑50................... Work out the income tax on your average income at basic rates               297

392‑55................... Work out the comparison rate......................................... 298

Subdivision 392‑C—How big is your averaging adjustment?                    298

Guide to Subdivision 392‑C                                                                                 298

392‑60................... What this Subdivision is about....................................... 298

392‑65................... What your averaging adjustment reflects........................ 299

Your gross averaging amount                                                                            300

392‑70................... Working out your gross averaging amount..................... 300

Your averaging adjustment                                                                                 300

392‑75................... Working out your averaging adjustment......................... 300

How to work out your averaging component                                                  301

392‑80................... Work out your taxable primary production income......... 301

392‑85................... Work out your taxable non‑primary production income. 302

392‑90................... Work out your averaging component.............................. 303

Subdivision 392‑D—Effect of permanent reduction of your basic taxable income      304

392‑95................... You are treated as if you had not carried on business before 304

Division 393—Farm management deposits                                                   306

Guide to Division 393                                                                                            306

393‑1..................... What this Division is about............................................. 306

Subdivision 393‑A—Tax consequences of farm management deposits   307

393‑5..................... Deduction for making farm management deposit............ 307

393‑10................... Assessability on repayment of deposit............................ 308

393‑15................... Transactions to which the deduction, assessment and 12 month rules have modified application            311

393‑16................... Consolidation of farm management deposits.................. 312

Subdivision 393‑B—Meaning of farm management deposit and owner 313

393‑20................... Farm management deposits............................................. 314

393‑25................... Owners of farm management deposits............................ 315

393‑27................... Trustee may choose that a beneficiary is a chosen beneficiary of the trust               317

393‑28................... Application of Division to beneficiary no longer under legal disability    317

393‑30................... Effect of contravening requirements............................... 318

393‑35................... Requirements of agreement for a farm management deposit 318

393‑40................... Repayment of deposit within first 12 months................. 320

393‑45................... Partly repaid farm management deposits......................... 322

Subdivision 393‑C—Special rules relating to financial claims scheme for account‑holders with insolvent ADIs                                                                                                       322

Guide to Subdivision 393‑C                                                                                 322

393‑50................... What this Subdivision is about....................................... 322

Operative provisions                                                                                             323

393‑55................... Farm management deposits arising from farm management deposits with ADIs subject to financial claims scheme............................................................................ 323

393‑60................... Repayment if owner of farm management deposit with insolvent ADI dies, is bankrupt or ceases to be a primary producer............................................................ 326

Division 394—Forestry managed investment schemes                           327

Guide to Division 394                                                                                            327

394‑1..................... What this Division is about............................................. 327

394‑5..................... Object of this Division.................................................... 327

394‑10................... Deduction for amounts paid under forestry managed investment schemes              328

394‑15................... Forestry managed investment schemes and related concepts 329

394‑20................... Payments on behalf of participant in forestry managed investment scheme             330

394‑25................... CGT event in relation to forestry interest in forestry managed investment scheme—initial participant    330

394‑30................... CGT event in relation to forestry interest in forestry managed investment scheme—subsequent participant........................................................................................ 331

394‑35................... 70% DFE rule................................................................. 333

394‑40................... Payments under forestry managed investment scheme... 334

394‑45................... Direct forestry expenditure............................................. 335

Division 405—Above‑average special professional income of authors, inventors, performing artists, production associates and sportspersons                             337

Guide to Division 405                                                                                            337

405‑1..................... What this Division is about............................................. 337

405‑5..................... Special rate of income tax on your above‑average special professional income       338

405‑10................... Overview of the Division............................................... 339

Subdivision 405‑A—Above‑average special professional income            341

405‑15................... When do you have above‑average special professional income?              341

Subdivision 405‑B—Assessable professional income                                   342

405‑20................... What you count as assessable professional income....... 342

405‑25................... Meaning of special professional, performing artist, production associate, sportsperson and sporting competition..................................................................... 344

405‑30................... What you cannot count as assessable professional income 346

405‑35................... Limits on counting amounts as assessable professional income               347

405‑40................... Joint author or inventor treated as sole author or inventor 348

Subdivision 405‑C—Taxable professional income and average taxable professional income 348

405‑45................... Working out your taxable professional income............... 349

405‑50................... Working out your average taxable professional income.. 349

Division 410—Copyright and resale royalty collecting societies      352

Guide to Division 410                                                                                            352

410‑1..................... What this Division is about............................................. 352

Subdivision 410‑A—Notice of payments                                                          352

410‑5..................... Copyright collecting society must give notice to member of society        352

410‑50................... Resale royalty collecting society must give notice to holder of resale royalty right  353

Division 415—Designated infrastructure projects                                   354

Guide to Division 415                                                                                            354

415‑1..................... What this Division is about............................................. 354

Subdivision 415‑A—Object of this Division                                                    354

415‑5..................... Object of this Division.................................................... 354

Subdivision 415‑B—Tax losses and bad debts                                                355

Guide to Subdivision 415‑B                                                                                 355

415‑10................... What this Subdivision is about....................................... 355

Uplift of tax losses                                                                                                  356

415‑15................... Uplift of tax losses of designated infrastructure project entities               356

415‑20................... Designated infrastructure project entity......................... 358

Change of ownership of trusts and companies                                                360

415‑25................... Tax losses of trusts......................................................... 360

415‑30................... Bad debts written off etc. by trusts................................. 361

415‑35................... Tax losses of companies................................................. 362

415‑40................... Bad debts written off by companies................................ 363

Consolidated groups                                                                                              365

415‑45................... Losses transferred to head companies of consolidated groups 365

Subdivision 415‑C—Designating infrastructure projects                            365

Guide to Subdivision 415‑C                                                                                 365

415‑50................... What this Subdivision is about....................................... 365

Designating infrastructure projects                                                                   366

415‑55................... Applications for designation........................................... 366

415‑60................... Dealing with applications................................................ 367

415‑65................... Provisional designation................................................... 368

415‑70................... Designation..................................................................... 370

Infrastructure project capital expenditure cap                                              372

415‑75................... Infrastructure project capital expenditure cap.................. 372

415‑80................... Acceptance of estimates of infrastructure project capital expenditure       373

Miscellaneous                                                                                                          375

415‑85................... Review of decisions........................................................ 375

415‑90................... Information to be made public........................................ 375

415‑95................... Delegation....................................................................... 375

415‑100................. Infrastructure project designation rules........................... 376

Division 418—Exploration for minerals                                                        377

Guide to Division 418                                                                                            377

418‑1..................... What this Division is about............................................. 377

Subdivision 418‑A—Object of this Division                                                    378

418‑5..................... Object of this Division.................................................... 378

Subdivision 418‑B—Exploration development incentive tax offset         378

Entitlement to exploration development incentive tax offset                     378

418‑10................... Who is entitled to the tax offset—ordinary case.............. 378

418‑15................... Who is entitled to the tax offset—life insurance company 379

418‑20................... Entitlement of member of a trust or partnership to a share of exploration credits     380

Amount of exploration development incentive tax offset                            382

418‑25................... The amount of the tax offset........................................... 382

418‑30................... Reduced amount of the tax offset for certain trusts......... 382

Subdivision 418‑C—Exploration development incentive franking credit 383

418‑50................... Exploration development incentive franking credit—ordinary case          383

418‑55................... Exploration development incentive franking credit—life insurance company          384

Subdivision 418‑D—Creating exploration credits                                         385

418‑70................... Entities that may create exploration credits...................... 385

418‑75................... Meaning of greenfields minerals explorer...................... 386

418‑80................... Meaning of greenfields minerals expenditure................. 387

418‑85................... Exploration credits must not exceed maximum exploration credit amount               389

418‑90................... Modulation factors.......................................................... 391

418‑95................... Effect on tax losses of creating exploration credits......... 392

Subdivision 418‑E—Issuing exploration credits                                            392

418‑110................. Issuing exploration credits.............................................. 393

418‑115................. Restricting exploration credits to post 1 July 2014 shares 393

418‑120................. Exploration credits to be issued on a proportionate basis 393

418‑125................. Expiry of exploration credits........................................... 394

418‑130................. Notifying the Commissioner of issuing or expiry of exploration credits  394

Subdivision 418‑F—Excess exploration credits                                             395

418‑150................. Excess exploration credit tax........................................... 395

418‑155................. Due date for payment of excess exploration credit tax.... 395

418‑160................. Returns........................................................................... 396

418‑165................. When shortfall interest charge is payable........................ 396

418‑170................. General interest charge.................................................... 396

418‑175................. Refunds of amounts overpaid......................................... 397

418‑180................. Record keeping............................................................... 397

418‑185................. Determining an entity not to be a greenfields minerals explorer               397

Part 3‑50—Climate change                                                                                          399

Division 420—Registered emissions units                                                      399

Guide to Division 420                                                                                            399

420‑1..................... What this Division is about............................................. 399

420‑5..................... The 4 key features of tax accounting for registered emissions units         400

Subdivision 420‑A—Registered emissions units                                             400

420‑10................... Meaning of registered emissions unit............................. 400

420‑12................... Meaning of hold a registered emissions unit................... 401

Subdivision 420‑B—Acquiring registered emissions units                          401

420‑15................... What you can deduct....................................................... 401

420‑20................... Non‑arm’s length transactions and transactions with associates              402

420‑21................... Incoming international transfers of emissions units........ 403

420‑22................... Becoming taxable in Australia on the proceeds of sale of registered emissions units               405

Subdivision 420‑C—Disposing of registered emissions units etc.              406

420‑25................... Assessable income on disposal of registered emissions units  407

420‑30................... Non‑arm’s length transactions and transactions with associates              407

420‑35................... Outgoing international transfers of emissions units........ 408

420‑40................... Disposal of registered emissions units for a purpose other than gaining assessable income    409

420‑41................... Ceasing to be taxable in Australia on the proceeds of sale of registered emissions units         411

420‑42................... Deduction for expenses incurred in ceasing to hold a registered emissions unit      412

Subdivision 420‑D—Accounting for registered emissions units you hold at the start or end of the income year  412

420‑45................... You include the value of your registered emissions units in working out your assessable income and deductions....................................................................... 412

420‑50................... Value of registered emissions units at start of income year 413

420‑51................... Valuation methods.......................................................... 414

420‑52................... FIFO cost method of working out the value of units...... 414

420‑53................... Actual cost method of working out the value of units..... 414

420‑54................... Market value method of working out the value of units.. 415

420‑55................... Valuation method for first income year at the end of which you held registered emissions units             415

420‑57................... Valuation method for later income years at the end of which you held registered emissions units           416

420‑60................... Cost of registered emissions units.................................. 418

Subdivision 420‑E—Exclusivity of Division                                                   418

420‑65................... Exclusivity of deductions etc.......................................... 418

420‑70................... Exclusivity of assessable income etc............................... 419


Chapter 3Specialist liability rules

Part 3‑32Co‑operatives and mutual entities

Division 315Demutualisation of private health insurers

Table of Subdivisions

             Guide to Division 315

315‑A   Capital gains and losses connected with a demutualisation of a private health insurer to be disregarded

315‑B    Cost base of certain shares and rights in private health insurers

315‑C    Lost policy holders trust

315‑D   Special cost base rules for certain shares and rights in holding companies

315‑E    Special CGT rule for legal personal representatives and beneficiaries

315‑F    Non‑CGT consequences of demutualisation

Guide to Division 315

315‑1  What this Division is about

This Division sets out the taxation consequences of the demutualisation of private health insurers.

Policy holders, demutualising health insurers and certain other entities can disregard capital gains and losses arising under a demutualisation (see Subdivision 315‑A).

Shares and rights issued under the demutualisation are given a cost base based on the market value of the demutualising health insurer at the time of issue (see Subdivisions 315‑B and 315‑D).

Assets held by a lost policy holders trust are given roll‑over relief if transferred to the lost policy holder, or if the lost policy holder becomes absolutely entitled to them. Otherwise the trustee of the lost policy holders trust is taxed on any capital gains (see Subdivision 315‑C).

A legal personal representative can disregard capital gains and losses made when passing an asset to a beneficiary of a policy holder’s estate (see Subdivision 315‑E).

Shares, rights or cash received under a demutualisation are not assessable income and not exempt income (see Subdivision 315‑F).

Subdivision 315‑ACapital gains and losses connected with a demutualisation of a private health insurer to be disregarded

Table of sections

Rules for policy holders

315‑5        Policy holders to disregard capital gains and losses related to demutualisation of private health insurer

315‑10      Effect on the legal personal representative or beneficiary

315‑15      Demutualisations to which this Division applies

315‑20      What assets are covered

Rules for demutualising health insurer

315‑25      Demutualising health insurers to disregard capital gains and losses related to demutualisation

Rules for other entities

315‑30      Other entities to disregard capital gains and losses related to demutualisation

Rules for policy holders

315‑5  Policy holders to disregard capital gains and losses related to demutualisation of private health insurer

                   Disregard a *capital gain or *capital loss of an individual from a *CGT event that happens in relation to a *CGT asset if:

                     (a)  the CGT event happens under a demutualisation to which this Division applies; and

                     (b)  the individual is, or has been, a policy holder (within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015) of, or another person insured through, the demutualising entity (the demutualising health insurer); and

                     (c)  the CGT asset is covered by section 315‑20.

315‑10  Effect on the legal personal representative or beneficiary

                   Disregard a *capital gain or *capital loss of an entity from a *CGT event that happens in relation to a *CGT asset if:

                     (a)  the CGT asset forms part of the estate of a deceased individual who is mentioned in paragraph 315‑5(b); and

                     (b)  the entity is the deceased individual’s *legal personal representative or a beneficiary in the deceased individual’s estate; and

                     (c)  the CGT asset devolves to the entity or *passes to the entity; and

                     (d)  the CGT event happens under a demutualisation to which this Division applies; and

                     (e)  the CGT asset is covered by section 315‑20.

315‑15  Demutualisations to which this Division applies

                   This Division applies to a demutualisation of an entity if:

                     (a)  the entity:

                              (i)  is an entity to which item 6.3 of the table in section 50‑30 applies; and

                             (ii)  is not registered under Part 3 of the Life Insurance Act 1995; and

                           (iia)  is not an entity to whose demutualisation Division 316 applies; and

                            (iii)  does not have capital divided into shares; and

Note:       Item 6.3 of the table in section 50‑30 applies to a private health insurer within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015 that is not carried on for the profit or gain of its individual members.

                     (b)  an application by the entity to convert to being registered as a for profit insurer (within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015) is approved under subsection 20(5) of that Act; and

                     (c)  consistently with the conversion scheme mentioned in paragraph 20(2)(a) of that Act, the entity becomes registered as a for profit insurer (within the meaning of that Act).

315‑20  What assets are covered

                   These *CGT assets are covered:

                     (a)  an interest in the demutualising health insurer as a policy holder;

                     (b)  a membership interest in the demutualising health insurer;

                     (c)  a right or interest of another kind in the demutualising health insurer;

                     (d)  a right or interest of another kind that arises under the demutualisation.

Rules for demutualising health insurer

315‑25  Demutualising health insurers to disregard capital gains and losses related to demutualisation

                   Disregard a *capital gain or *capital loss of an entity from a *CGT event if:

                     (a)  the CGT event happened under a demutualisation to which this Division applies; and

                     (b)  the entity is the demutualising health insurer.

Rules for other entities

315‑30  Other entities to disregard capital gains and losses related to demutualisation

                   Disregard a *capital gain or *capital loss of an entity from a *CGT event if:

                     (a)  the entity is established solely for the purpose of participating in a demutualisation to which this Division applies; and

                     (b)  the entity is not a trust covered by Subdivision 315‑C (about lost policy holders); and

                     (c)  the CGT event:

                              (i)  happened under a demutualisation to which this Division applies; and

                             (ii)  happened before or at the same time as the allocation or distribution (in the form of shares or cash) of the accumulated surplus of the demutualising health insurer; and

                            (iii)  was connected to that allocation or distribution.

Note:          The allocation or distribution of the accumulated surplus could happen through an arrangement involving more than one transaction.

Subdivision 315‑BCost base of certain shares and rights in private health insurers

Table of sections

315‑80      Cost base and acquisition time of demutualisation assets

315‑85      Demutualisation asset

315‑90      Participating policy holders

315‑80  Cost base and acquisition time of demutualisation assets

Cost base adjustment

             (1)  The first element of the *cost base and *reduced cost base of a *CGT asset is its *market value on the day it is issued if:

                     (a)  the asset is covered by section 315‑85 (a demutualisation asset); and

                     (b)  the asset is issued to an entity (a participating policy holder) covered by section 315‑90.

Note:          There is an exception to this rule in Subdivision 315‑D where the asset is a share or right in a holding company with other assets.

Acquisition rule

             (2)  The participating policy holder is taken to have *acquired the demutualisation asset at the time it is issued.

315‑85  Demutualisation asset

             (1)  This section covers an asset if:

                     (a)  the asset is:

                              (i)  a share in the demutualising health insurer; or

                             (ii)  a right to *acquire a share in the demutualising health insurer; or

                            (iii)  a share in an entity that owns all of the shares in the demutualising health insurer; or

                            (iv)  a right to acquire a share in an entity mentioned in subparagraph (iii); and

                     (b)  the share or right is issued under a demutualisation to which this Division applies; and

                     (c)  the share or right is issued in connection with:

                              (i)  the variation or abrogation of rights attaching to or consisting of a *CGT asset covered by section 315‑20; or

                             (ii)  the conversion, cancellation, extinguishment or redemption of such a CGT asset.

Exclusion for rights with an exercise price

             (2)  Despite subsection (1), this section does not cover a right to *acquire a share in an entity if the holder of the right must pay an amount to exercise the right.

Exclusion where assets not issued simultaneously

             (3)  Despite subsection (1), an asset is not covered by this section unless all of the assets covered by subsection (1) for the demutualisation in question are issued:

                     (a)  at the same time; and

                     (b)  to an entity that is either:

                              (i)  a participating policy holder (see section 315‑90); or

                             (ii)  the trustee of a trust covered by Subdivision 315‑C (about the lost policy holders trust).

315‑90  Participating policy holders

             (1)  This section covers an individual who:

                     (a)  is, or has been, a policy holder (within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015) of, or another person insured through, the demutualising health insurer; and

                     (b)  is entitled, under the demutualisation, to an allocation of demutualisation assets.

             (2)  This section also covers an entity who became entitled to an allocation of demutualisation assets because of the death of an individual mentioned in subsection (1).

Subdivision 315‑CLost policy holders trust

Table of sections

315‑140    Lost policy holders trust

315‑145    CGT treatment of demutualisation assets in lost policy holders trust

315‑150    Roll‑over where assets transferred to lost policy holder

315‑155    Trustee assessed if assets dealt with not for benefit of lost policy holder

315‑160    Subdivision 126‑E does not apply to lost policy holders trust

315‑140  Lost policy holders trust

                   This Subdivision covers a trust (a lost policy holders trust) in relation to a demutualisation to which this Division applies if:

                     (a)  the conversion scheme mentioned in paragraph 20(2)(a) of the Private Health Insurance (Prudential Supervision) Act 2015 for the demutualisation provides for the trust; and

                     (b)  under the demutualisation, demutualisation assets (see section 315‑85) are issued to the trustee of the trust; and

                     (c)  the trust exists solely for the purpose of holding shares or rights to *acquire shares on behalf of:

                              (i)  individuals (lost policy holders) who are, or have been, policy holders (within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015) of, or other persons insured through, the demutualising health insurer; or

                             (ii)  if the lost policy holder has died—the *legal personal representative of the lost policy holder or a beneficiary in the estate of the lost policy holder.

Example:    An example of an individual on whose behalf the trust might hold assets would be an individual who has not completed a formal step required for them to be issued with demutualisation assets directly. Another example might be an individual living overseas.

315‑145  CGT treatment of demutualisation assets in lost policy holders trust

Cost base adjustment

             (1)  The first element of the *cost base and *reduced cost base of a demutualisation asset issued to the trustee of a lost policy holders trust is its *market value on the day it is issued.

Note:          There is an exception to this rule in Subdivision 315‑D where the asset is a share or right in a holding company with other assets.

Acquisition rule

             (2)  The trustee is taken to have *acquired the demutualisation asset at the time it is issued.

315‑150  Roll‑over where assets transferred to lost policy holder

             (1)  This section applies in relation to a *CGT event if:

                     (a)  the CGT event happens in relation to an asset held by the trustee of a lost policy holders trust on behalf of a lost policy holder; and

                     (b)  the CGT event happens because the lost policy holder (or, if the lost policy holder has died, the *legal personal representative of the lost policy holder or a beneficiary in the estate of the lost policy holder) either:

                              (i)  is transferred the asset by the trustee; or

                             (ii)  becomes absolutely entitled to the asset.

Note:          The asset may be a demutualisation asset, or some other asset.

Consequence for trustee

             (2)  Disregard a *capital gain or *capital loss the trustee makes from the *CGT event.

Consequence for lost policy holder

             (3)  The *cost base of the asset in the hands of the trustee of the lost policy holders trust just before the *CGT event becomes the first element of the cost base and *reduced cost base of the asset in the hands of the lost policy holder, *legal personal representative or beneficiary.

             (4)  The lost policy holder, *legal personal representative or beneficiary is taken to have *acquired the asset when the trustee of the lost policy holders trust acquired it.

315‑155  Trustee assessed if assets dealt with not for benefit of lost policy holder

             (1)  This section applies in relation to a *capital gain from a *CGT event if:

                     (a)  the CGT event happens in relation to an asset held by the trustee of a lost policy holders trust; and

                     (b)  section 315‑150 does not apply to the CGT event.

             (2)  If this section applies:

                     (a)  sections 115‑215 and 115‑220 do not apply in relation to the *capital gain; and

                     (b)  for the purposes of this Act, the trustee is taken to be *specifically entitled to all of the capital gain.

315‑160  Subdivision 126‑E does not apply to lost policy holders trust

                   Subdivision 126‑E does not apply in relation to a demutualisation to which this Division applies.

Subdivision 315‑DSpecial cost base rules for certain shares and rights in holding companies

Table of sections

315‑210    Cost base for shares and rights in certain holding companies

315‑210  Cost base for shares and rights in certain holding companies

             (1)  This section applies in relation to a *CGT asset that is a demutualisation asset if:

                     (a)  the demutualisation asset is:

                              (i)  a share in an entity mentioned in subparagraph 315‑85(1)(a)(iii); or

                             (ii)  a right to *acquire a share in an entity mentioned in that subparagraph; and

                     (b)  the entity owns other assets in addition to the shares in the demutualising health insurer; and

                     (c)  the share or right is issued to a participating policy holder or the trustee of a lost policy holders trust.

This section applies despite sections 315‑80 and 315‑145.

Cost base adjustment

             (2)  The first element of the *cost base and *reduced cost base of the *CGT asset is worked out under the method statement.

Method statement

Step 1.   Start with the *market value of the demutualising health insurer on the day the asset is issued.

Step 2.   Divide the result of step 1 by the sum of:

               (a)     the number of shares in the entity that are issued under the demutualisation; and

              (b)     the number of shares in the entity that can be *acquired under rights that are demutualisation assets issued under the demutualisation.

Step 3.   The result of step 2 is the first element of the *cost base and *reduced cost base of the asset, unless the asset is a right.

Step 4.   If the asset is a right, multiply the result of step 2 by the number of shares that can be *acquired under the right. The result is the first element of the *cost base and *reduced cost base of the asset.

Example:    Wellbeing Health demutualises on 1 April 2008 and has a market value of $400 million on that day. It distributes its accumulated mutual surplus in the form of rights to acquire shares in its holding company Healthiness Insurance Ltd (Healthiness). The rights do not have an exercise price.

                   A total of 800 million shares can be acquired in Healthiness under rights issued under the demutualisation. Each right allows the holder to acquire 50 shares. No shares in Healthiness are issued.

                   Under the method statement, the first element of the cost base and reduced cost base of each right is worked out by dividing the market value of Wellbeing Health (step 1) by the number of shares in Healthiness that can be acquired under the demutualisation (step 2) and multiplying the result by the number of shares that can be acquired under the right (step 4):

Acquisition rule

             (3)  The participating policy holder or trustee is taken to have *acquired the *CGT asset at the time it is issued.

Subdivision 315‑ESpecial CGT rule for legal personal representatives and beneficiaries

Table of sections

315‑260    Special CGT rule for legal personal representatives and beneficiaries

315‑260  Special CGT rule for legal personal representatives and beneficiaries

             (1)  This section sets out what happens if a *CGT asset:

                     (a)  is a demutualisation asset; and

                     (b)  forms part of the estate of a participating policy holder mentioned in subsection 315‑90(1) who has died, but was not owned by the policy holder just before dying; and

                     (c)  *passes to a beneficiary in the policy holder’s estate because the asset is transferred to the beneficiary by the policy holder’s *legal personal representative.

Note:          Division 128 deals with the effect of death in relation to CGT assets a person owns just before dying.

             (2)  Disregard a *capital gain or *capital loss the *legal personal representative makes if the asset *passes to a beneficiary in the policy holder’s estate.

Consequence for beneficiary

             (3)  The *cost base and *reduced cost base of the asset in the hands of the *legal personal representative just before the asset *passes to the beneficiary becomes the first element of the cost base and reduced cost base of the asset in the hands of the beneficiary.

             (4)  The beneficiary is taken to have *acquired the asset when the *legal personal representative acquired it.

Subdivision 315‑FNon‑CGT consequences of demutualisation

Table of sections

315‑310    General taxation consequences of issue of demutualisation assets etc.

315‑310  General taxation consequences of issue of demutualisation assets etc.

             (1)  An amount of *ordinary income or *statutory income of an entity to which subsection (2) applies is not assessable and not *exempt income if:

                     (a)  the amount would otherwise be included in the ordinary income or statutory income of the entity only because a demutualisation asset was issued to the entity; or

                     (b)  the amount is a payment made to the entity, under a demutualisation to which this Division applies, in connection with:

                              (i)  the variation or abrogation of rights attaching to or consisting of a *CGT asset covered by section 315‑20; or

                             (ii)  the conversion, cancellation, extinguishment or redemption of such a CGT asset.

             (2)  This subsection applies to an entity that:

                     (a)  is, or has been, a policy holder (within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015) of, or another person insured through, the demutualising health insurer; or

                     (b)  is issued with the demutualisation asset, or receives the payment, because of the death of a policy holder mentioned in paragraph (a).

Division 316Demutualisation of friendly society health or life insurers

Table of Subdivisions

             Guide to Division 316

316‑A   Application

316‑B    Capital gains and losses connected with the demutualisation

316‑C    Cost base of shares and rights issued under the demutualisation

316‑D   Lost policy holders trust

316‑E    Special CGT rules for legal personal representatives and beneficiaries

316‑F    Non‑CGT consequences of the demutualisation

Guide to Division 316

316‑1  What this Division is about

Special tax consequences follow the demutualisation of a friendly society that provides health insurance or life insurance, or has a wholly‑owned subsidiary that does.

Subdivision 316‑AApplication

Table of sections

316‑5        Application of this Division

316‑5  Application of this Division

                   This Division applies in relation to a demutualisation of a *friendly society if:

                     (a)  the society is, or has a *wholly‑owned subsidiary (a health/life insurance subsidiary) that is:

                              (i)  a private health insurer as defined in the Private Health Insurance (Prudential Supervision) Act 2015; or

                             (ii)  a company registered under section 21 of the Life Insurance Act 1995; and

                     (b)  the society does not have capital divided into *shares held by its *members; and

                     (c)  after the demutualisation the society is to be carried on for the object of securing a profit or pecuniary gain for its *members.

Subdivision 316‑BCapital gains and losses connected with the demutualisation

Guide to Subdivision 316‑B

316‑50  What this Subdivision is about

Disregard capital gains and losses made by any entity from a CGT event happening under the demutualisation, unless the entity:

               (a)     is or has been a member of the friendly society or insured through the society or any of its wholly‑owned subsidiaries; and

              (b)     receives money for the event.

Table of sections

Gains and losses of members, insured entities and successors

316‑55      Disregarding capital gains and losses, except some involving receipt of money

316‑60      Taking account of some capital gains and losses involving receipt of money

316‑65      Valuation factor for sections 316‑60, 316‑105 and 316‑165

316‑70      Value of the friendly society

Friendly society’s gains and losses

316‑75      Disregarding friendly society’s capital gains and losses

Other entities’ gains and losses

316‑80      Disregarding other entities’ capital gains and losses

Gains and losses of members, insured entities and successors

316‑55  Disregarding capital gains and losses, except some involving receipt of money

             (1)  Disregard an entity’s *capital gain or *capital loss from a *CGT event that happens under the demutualisation to a *CGT asset if:

                     (a)  the entity:

                              (i)  is or has been a *member of the *friendly society; or

                             (ii)  is or has been insured through the friendly society or a health/life insurance subsidiary of the friendly society; and

                     (b)  the CGT asset is one of these (an interest affected by demutualisation):

                              (i)  an interest in the friendly society as the owner or holder of a policy of insurance with the friendly society or health/life insurance subsidiary;

                             (ii)  a *membership interest in the friendly society;

                            (iii)  a right or interest of another kind in the friendly society;

                            (iv)  a right or interest of another kind that arises under the demutualisation, except an interest in a lost policy holders trust (see section 316‑155).

Note:          Subdivision 316‑D deals with the effects of CGT events happening to interests in lost policy holders trusts.

             (2)  Disregard a *capital gain or *capital loss of an entity (the successor) from a *CGT event that happens under the demutualisation to a *CGT asset if:

                     (a)  the successor is the *legal personal representative, or beneficiary in the estate, of a deceased individual who was:

                              (i)  a *member of the *friendly society; or

                             (ii)  insured through the friendly society or a health/life insurance subsidiary of the friendly society; and

                     (b)  the CGT asset:

                              (i)  forms part of the deceased individual’s estate; and

                             (ii)  devolves or *passes to the successor; and

                            (iii)  is an interest affected by demutualisation (see paragraph (1)(b)).

316‑60  Taking account of some capital gains and losses involving receipt of money

             (1)  This section applies if:

                     (a)  a *CGT event happens under the demutualisation to an entity’s interest affected by demutualisation (see section 316‑55); and

                     (b)  the event involves:

                              (i)  the variation or abrogation of rights attaching to or consisting of the interest; or

                             (ii)  the conversion, cancellation, extinguishment or redemption of the interest; and

                     (c)  either:

                              (i)  the entity is one described in paragraph 316‑55(1)(a); or

                             (ii)  the entity is one described in paragraph 316‑55(2)(a) and the interest is a *CGT asset described in paragraph 316‑55(2)(b); and

                     (d)  the *capital proceeds from the event include or consist of money received by the entity.

             (2)  Work out whether the entity makes a *capital gain or *capital loss from the *CGT event, and the amount of the gain or loss, assuming that:

                     (a)  the *capital proceeds from the CGT event were the amount they would be if they did not include any *market value of property other than money; and

                     (b)  the *cost base and *reduced cost base for the interest were the amount worked out using the formula:

Example:    Assume the entity receives $50 in money and 10 shares with a market value of $4 each in respect of CGT event C2 happening, and that the valuation factor worked out under section 316‑65 is 0.9. The entity makes a capital gain from the event of $5, worked out as follows:

                   This ignores the market value of the shares because they are property other than money.

Note:          Division 114 (Indexation of cost base) is not relevant, because this section provides exhaustively for working out the amount of the cost base.

             (3)  The *capital gain or *capital loss is not to be disregarded, despite:

                     (a)  section 316‑55; and

                     (b)  any provision of this Act for disregarding the *capital gain or *capital loss because the interest affected by demutualisation was *acquired before 20 September 1985.

Note:          The capital gain is not a discount capital gain: see section 115‑55.

316‑65  Valuation factor for sections 316‑60, 316‑105 and 316‑165

             (1)  For the purposes of sections 316‑60, 316‑105 and 316‑165, the valuation factor is the amount worked out using the formula:

where:

embedded value of the friendly society’s other business (if any) means the amount that would be the value of the *friendly society worked out under section 316‑70 assuming that neither the friendly society, nor any health/life insurance subsidiary of it, carried on any health insurance business within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015.

market value of the friendly society’s health insurance business (if any) means the total *market value of every health insurance business, within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015, carried on by either or both of the *friendly society and its health/life insurance subsidiaries (if any), taking account of any consideration paid to the society or subsidiary for disposal or control of that business.

             (2)  Disregard paragraph 316‑60(2)(a) for the purposes of the formula in subsection (1) of this section.

316‑70  Value of the friendly society

             (1)  The value of the *friendly society is the sum, worked out in accordance with this section, of the friendly society’s existing business value and its adjusted net worth on the day (the applicable accounting day) identified under subsection (3).

Eligible actuary and Australian actuarial practice

             (2)  The sum is to be worked out, according to Australian actuarial practice, by an *actuary who is not an employee of:

                     (a)  the *friendly society; or

                     (b)  a health/life insurance subsidiary of the friendly society; or

                     (c)  an entity of which the friendly society is to become a *wholly‑owned subsidiary under the demutualisation.

Applicable accounting day

             (3)  The applicable accounting day is:

                     (a)  if an accounting period of the *friendly society ends on the day (the demutualisation resolution day) identified under subsection (4)—that day; or

                     (b)  in any other case—the last day of the most recent accounting period of the friendly society ending before the demutualisation resolution day.

Demutualisation resolution day

             (4)  The demutualisation resolution day is:

                     (a)  the day on which the resolution to proceed with the demutualisation is passed; or

                     (b)  if, under the demutualisation, the whole of the *life insurance business of the *friendly society or of a health/life insurance subsidiary of the friendly society is transferred to another company under a scheme confirmed by the Federal Court of Australia—the day (or the last day) on which the transfer takes place.

Adjustment for changes after applicable accounting day

             (5)  In a case covered by paragraph (3)(b), if any significant change in the amount of the existing business value or adjusted net worth occurs between the applicable accounting day and the demutualisation resolution day, the amount is to be adjusted to take account of the change.

Continued business assumption

             (6)  In working out the existing business value or the adjusted net worth, assume:

                     (a)  that after the applicable accounting day the *friendly society, and any health/life insurance subsidiary of the friendly society, will continue to conduct *business and any other activity in the same way as before that day, and will not conduct any different business or other activity; and

                     (b)  that the demutualisation will not occur; and

                     (c)  that any health/life insurance subsidiary of the friendly society will continue to be a *wholly‑owned subsidiary of the friendly society.

Expenditure assumption

             (7)  In working out the existing business value, assume that expenditure that the *friendly society and any of its health/life insurance subsidiaries will incur, in conducting *business, on recurring items after the demutualisation resolution day will be of the same kinds and amounts (increased to take account of any inflation) as it incurred in the accounting period, or part of an accounting period, ending on the demutualisation resolution day.

Friendly society’s gains and losses

316‑75  Disregarding friendly society’s capital gains and losses

                   Disregard the *friendly society’s *capital gain or *capital loss from a *CGT event that happens under the demutualisation.

Other entities’ gains and losses

316‑80  Disregarding other entities’ capital gains and losses

                   Disregard an entity’s *capital gain or *capital loss from a *CGT event that happens under the demutualisation if:

                     (a)  the entity is established solely for the purpose of participating in the demutualisation and is not a lost policy holders trust (see section 316‑155); and

                     (b)  the CGT event:

                              (i)  happens before or at the same time as the allocation or distribution of the accumulated surplus of the *friendly society; and

                             (ii)  is connected to that allocation or distribution.

Note:          The allocation or distribution of the accumulated surplus could happen through an arrangement involving more than one transaction.

Subdivision 316‑CCost base of shares and rights issued under the demutualisation

Guide to Subdivision 316‑C

316‑100  What this Subdivision is about

The value of the friendly society and its business affects cost bases of shares and certain rights issued under the demutualisation to:

               (a)     entities that are or were members of the friendly society; or

              (b)     entities insured through the society or its subsidiaries; or

               (c)     successors of such entities; or

              (d)     the trustee of the lost policy holders trust.

Table of sections

316‑105    Cost base and time of acquisition of shares and certain rights issued under demutualisation

316‑110    Demutualisation assets

316‑115    Entities to which section 316‑105 applies

316‑105  Cost base and time of acquisition of shares and certain rights issued under demutualisation

First element of cost base

             (1)  The first element of the *cost base and *reduced cost base of a *CGT asset is the amount worked out using the formula in subsection (2) if:

                     (a)  the asset is a CGT asset (a demutualisation asset) covered by section 316‑110; and

                     (b)  the asset is issued to an entity covered by section 316‑115.

             (2)  The formula is:

Time of acquisition

             (3)  The entity is taken to have *acquired the *CGT asset at the time it is issued.

316‑110  Demutualisation assets

             (1)  This section covers a *CGT asset that:

                     (a)  is:

                              (i)  a *share in the *friendly society; or

                             (ii)  a right to *acquire a share in the friendly society; or

                            (iii)  a share in an entity that owns all of the shares in the friendly society; or

                            (iv)  a right to acquire a share in an entity mentioned in subparagraph (iii); and

                     (b)  is issued under the demutualisation; and

                     (c)  is issued in connection with:

                              (i)  the variation or abrogation of rights attaching to or consisting of an interest affected by demutualisation (see paragraph 316‑55(1)(b)); or

                             (ii)  the conversion, cancellation, extinguishment or redemption of an interest affected by demutualisation.

Exclusion for rights with an exercise price

             (2)  Despite subsection (1), this section does not cover a right to *acquire a *share in an entity if the holder of the right must pay an amount to exercise the right.

Exclusion where assets not issued simultaneously

             (3)  Despite subsection (1), a *CGT asset is not covered by this section unless all of the CGT assets covered by subsection (1) for the demutualisation are issued:

                     (a)  at the same time; and

                     (b)  to entities that are covered by section 316‑115.

316‑115  Entities to which section 316‑105 applies

             (1)  This section covers an entity that:

                     (a)  either:

                              (i)  is or has been a *member of the *friendly society; or

                             (ii)  is or has been insured through the friendly society or a health/life insurance subsidiary of the friendly society; and

                     (b)  is entitled under the demutualisation to an allocation of demutualisation assets.

             (2)  This section also covers an entity that has become entitled to an allocation of demutualisation assets because of the death of an individual who was an entity described in subsection (1).

             (3)  This section also covers the trustee of a lost policy holders trust (see section 316‑155).

Subdivision 316‑DLost policy holders trust

Guide to Subdivision 316‑D

316‑150  What this Subdivision is about

If the demutualisation creates a trust just to hold shares, rights to acquire shares or money for entities that were members of the friendly society or insured through the society or its subsidiary, or are successors of such entities, then:

               (a)     capital gains or losses from CGT events happening to beneficiaries’ interests in the trust are disregarded, except where the capital proceeds include money; and

              (b)     when a CGT event happens involving the transfer of the shares or rights to a beneficiary, or a beneficiary’s absolute entitlement to them, the trustee’s capital gain or loss is disregarded and the beneficiary has the same cost base and time of acquisition as the trustee; and

               (c)     the trustee is assessed on any capital gains from other CGT events happening to the shares or rights.

Table of sections

Application

316‑155    Lost policy holders trust

Effects of CGT events happening to interests and assets in trust

316‑160    Disregarding beneficiaries’ capital gains and losses, except some involving receipt of money

316‑165    Taking account of some capital gains and losses involving receipt of money by beneficiaries

316‑170    Roll‑over where shares or rights to acquire shares transferred to beneficiary of lost policy holders trust

316‑175    Trustee assessed if shares or rights dealt with not for benefit of beneficiary of lost policy holders trust

316‑180    Subdivision 126‑E does not apply

Application

316‑155  Lost policy holders trust

             (1)  This Subdivision applies if the conditions in subsections (2) and (5) are met.

First condition

             (2)  The first condition is that, under the demutualisation, a trust (the lost policy holders trust) exists solely for one or both of the purposes that are described in subsection (3) in relation to persons (beneficiaries of the lost policy holders trust) covered by subsection (4).

             (3)  The purposes are as follows:

                     (a)  holding demutualisation assets (see section 316‑110) that are *shares or rights to *acquire shares, or proceeds from disposal of those assets, on behalf of one or more beneficiaries of the lost policy holders trust and transferring those assets or proceeds to those beneficiaries;

                     (b)  holding on behalf of one or more beneficiaries of the lost policy holders trust, and paying to them, money payable to them for:

                              (i)  the variation or abrogation of rights attaching to or consisting of the beneficiaries’ interests affected by demutualisation (see paragraph 316‑55(1)(b)); or

                             (ii)  the conversion, cancellation, extinguishment or redemption of those interests.

             (4)  This subsection covers:

                     (a)  a person who is or has been a *member of the friendly society or is or has been insured through the *friendly society or a health/life insurance subsidiary of the friendly society; and

                     (b)  a *legal personal representative, or beneficiary in the estate, of such a person who has died.

Second condition

             (5)  The second condition is that, under the demutualisation, the trustee of the lost policy holders trust is:

                     (a)  issued with demutualisation assets that are *shares, or rights to *acquire shares; or

                     (b)  paid money described in paragraph (3)(b) to hold and pay to beneficiaries of the lost policy holders trust.

Effects of CGT events happening to interests and assets in trust

316‑160  Disregarding beneficiaries’ capital gains and losses, except some involving receipt of money

                   Disregard a *capital gain or *capital loss of a beneficiary of the lost policy holders trust from a *CGT event that happens to the beneficiary’s interest in the trust.

316‑165  Taking account of some capital gains and losses involving receipt of money by beneficiaries

             (1)  This section applies if:

                     (a)  a *CGT event happens to an interest of a beneficiary of the lost policy holders trust in that trust; and

                     (b)  the *capital proceeds from the event include or consist of money received by the beneficiary.

             (2)  Work out whether the beneficiary makes a *capital gain or *capital loss from the *CGT event, and the amount of the gain or loss, assuming that:

                     (a)  the *capital proceeds from the CGT event were the amount they would be if they did not include any *market value of property other than money; and

                     (b)  the *cost base and *reduced cost base for the interest were the amount worked out using the formula:

Example:    Assume that the beneficiary of the lost policy holders trust is paid $50 in money by the trustee to satisfy the beneficiary’s interest in the trust so that a CGT event happens, and that the valuation factor worked out under section 316‑65 is 0.9. The beneficiary makes a capital gain from the event of $5, worked out as follows:

Note:          Division 114 (Indexation of cost base) is not relevant, because this section provides exhaustively for working out the amount of the cost base.

             (3)  The *capital gain or *capital loss is not to be disregarded, despite sections 316‑55 and 316‑160.

Note:          The capital gain is not a discount capital gain: see section 115‑55.

316‑170  Roll‑over where shares or rights to acquire shares transferred to beneficiary of lost policy holders trust

             (1)  This section applies in relation to a *CGT event if:

                     (a)  the CGT event happens in relation to an asset that:

                              (i)  is a *share or a right to *acquire one or more shares; and

                             (ii)  is held by the trustee of the lost policy holders trust on behalf of a beneficiary of the lost policy holders trust; and

                     (b)  the CGT event happens because the beneficiary of the lost policy holders trust either:

                              (i)  is transferred the asset by the trustee; or

                             (ii)  becomes absolutely entitled to the asset.

Consequence for trustee

             (2)  Disregard a *capital gain or *capital loss the trustee makes from the *CGT event.

Consequences for beneficiary

             (3)  The *cost base and *reduced cost base of the asset in the hands of the trustee of the lost policy holders trust just before the *CGT event becomes the first element of the cost base and reduced cost base of the asset in the hands of the beneficiary of the lost policy holders trust.

Note:          Section 316‑105 affects the cost base of the asset in the hands of the trustee of the lost policy holders trust if the asset is covered by section 316‑110.

             (4)  The beneficiary of the lost policy holders trust is taken to have *acquired the asset when the trustee acquired it.

316‑175  Trustee assessed if shares or rights dealt with not for benefit of beneficiary of lost policy holders trust

             (1)  This section applies in relation to a *capital gain from a *CGT event if:

                     (a)  the CGT event happens in relation to a demutualisation asset that:

                              (i)  is a *share or a right to *acquire a share; and

                             (ii)  is held by the trustee of a lost policy holders trust; and

                     (b)  section 316‑170 does not apply to the CGT event.

             (2)  If this section applies:

                     (a)  sections 115‑215 and 115‑220 do not apply in relation to the *capital gain; and

                     (b)  for the purposes of this Act, the trustee is taken to be *specifically entitled to all of the capital gain.

316‑180  Subdivision 126‑E does not apply

                   Subdivision 126‑E does not apply in relation to the demutualisation.

Note:          Subdivision 126‑E is about an entitlement to shares after demutualisation and scrip for scrip roll‑over.

Subdivision 316‑ESpecial CGT rules for legal personal representatives and beneficiaries

Table of sections

316‑200    Demutualisation assets not owned by deceased but passing to beneficiary in deceased estate

316‑205    Interest in lost policy holders trust not owned by deceased but passing to beneficiary in deceased estate

316‑200  Demutualisation assets not owned by deceased but passing to beneficiary in deceased estate

             (1)  This section sets out what happens if a *CGT asset:

                     (a)  is a demutualisation asset (see section 316‑110); and

                     (b)  forms part of the estate of an individual who is an entity described in subsection 316‑115(1) and has died; and

                     (c)  was not owned by the individual just before dying; and

                     (d)  *passes to a beneficiary in the individual’s estate because the asset is transferred to the beneficiary by the individual’s *legal personal representative.

Note:          Division 128 deals with the effect of death in relation to CGT assets a person owns just before dying.

Consequence for legal personal representative

             (2)  Disregard a *capital gain or *capital loss the *legal personal representative makes because the asset *passes to the beneficiary.

Consequence for beneficiary

             (3)  The *cost base and *reduced cost base of the asset in the hands of the *legal personal representative just before the asset *passes to the beneficiary becomes the first element of the cost base and reduced cost base of the asset in the hands of the beneficiary.

             (4)  The beneficiary is taken to have *acquired the asset when the *legal personal representative acquired it.

316‑205  Interest in lost policy holders trust not owned by deceased but passing to beneficiary in deceased estate

             (1)  This section sets out what happens if a *CGT asset:

                     (a)  is an interest in a lost policy holders trust (see section 316‑155); and

                     (b)  forms part of the estate of an individual who is an entity described in subsection 316‑115(1) and has died; and

                     (c)  was not owned by the individual just before dying; and

                     (d)  *passes to a beneficiary in the individual’s estate because the asset is transferred to the beneficiary by the individual’s *legal personal representative.

Note:          Division 128 deals with the effect of death in relation to CGT assets a person owns just before dying.

Consequence for legal personal representative

             (2)  Disregard a *capital gain or *capital loss the *legal personal representative makes because the asset *passes to the beneficiary.

Subdivision 316‑FNon‑CGT consequences of the demutualisation

Guide to Subdivision 316‑F

316‑250  What this Subdivision is about

In many cases, income from demutualisation is assessed through the CGT provisions rather than as ordinary income or other statutory income.

Franking debits arise for the friendly society and its subsidiaries to ensure they do not enjoy a franking surplus. Franking debits and credits arise to negate credits and debits from things attributable to the time before demutualisation.

Table of sections

316‑255    General taxation consequences of issue of demutualisation assets etc.

316‑260    Franking debits to stop the friendly society and its subsidiaries having franking surpluses

316‑265    Franking debits to negate franking credits from some distributions to friendly society and subsidiaries

316‑270    Franking debits to negate franking credits from post‑demutualisation payments of pre‑demutualisation tax

316‑275    Franking credits to negate franking debits from refunds of tax paid before demutualisation

316‑255  General taxation consequences of issue of demutualisation assets etc.

             (1)  An amount of *ordinary income or *statutory income (other than a *net capital gain) of an entity covered by subsection (2) is not assessable income and is not *exempt income if:

                     (a)  the amount would otherwise be included in the ordinary income or statutory income of the entity only because a demutualisation asset (see section 316‑110) was issued to the entity; or

                     (b)  the amount is a payment made to the entity, under the demutualisation, in connection with:

                              (i)  the variation or abrogation of rights attaching to or consisting of an interest affected by demutualisation (see paragraph 316‑55(1)(b)); or

                             (ii)  the conversion, cancellation, extinguishment or redemption of an interest affected by demutualisation; or

                     (c)  the amount would otherwise be included in the ordinary income or statutory income of the entity only because a *share or a right to *acquire one or more shares was transferred to the entity by the trustee of a lost policy holders trust (see section 316‑155); or

                     (d)  the amount is a payment made to the entity from a lost policy holders trust in connection with:

                              (i)  the variation or abrogation of rights attaching to or consisting of an interest affected by demutualisation; or

                             (ii)  the conversion, cancellation, extinguishment or redemption of an interest affected by demutualisation.

             (2)  This subsection covers an entity that:

                     (a)  is or has been a *member of the *friendly society; or

                     (b)  is or has been insured through the friendly society or a health/life insurance subsidiary of the friendly society; or

                     (c)  is issued with the demutualisation asset, or receives the payment, because of the death of a person covered by paragraph (a) or (b); or

                     (d)  is a beneficiary of a lost policy holders trust (see section 316‑155).

316‑260  Franking debits to stop the friendly society and its subsidiaries having franking surpluses

             (1)  A *franking debit arises in the *franking account of the *friendly society or a *wholly‑owned subsidiary of the society if the account is in *surplus immediately before the demutualisation resolution day identified under subsection 316‑70(4).

             (2)  The amount of the *franking debit equals the *surplus.

             (3)  The *franking debit arises at the start of that day.

316‑265  Franking debits to negate franking credits from some distributions to friendly society and subsidiaries

             (1)  This section applies if a *franking credit arises in the *franking account of the *friendly society or a *wholly‑owned subsidiary of the society because a *distribution declared before the demutualisation resolution day identified under subsection 316‑70(4) is made to the society or subsidiary on or after that day.

             (2)  A *franking debit arises in that account.

             (3)  The amount of the *franking debit equals the amount of the *franking credit.

             (4)  The *franking debit arises at the same time as the *franking credit arises.

316‑270  Franking debits to negate franking credits from post‑demutualisation payments of pre‑demutualisation tax

             (1)  This section applies if a *franking credit arises in the *franking account of the *friendly society or a *wholly‑owned subsidiary of the society because, on or after the demutualisation resolution day identified under subsection 316‑70(4), the society or subsidiary *pays a PAYG instalment, or *pays income tax, that is wholly or partly attributable to a period before that day.

             (2)  A *franking debit arises in that account.

             (3)  The amount of the *franking debit is so much of the *franking credit as is attributable to the period before that day.

             (4)  The *franking debit arises at the same time as the *franking credit arises.

316‑275  Franking credits to negate franking debits from refunds of tax paid before demutualisation

             (1)  This section applies if a *franking debit arises in the *franking account of the *friendly society or a *wholly‑owned subsidiary of the society because, on or after the demutualisation resolution day identified under subsection 316‑70(4), the society or subsidiary *receives a refund of income tax that is wholly or partly attributable to a period before that day.

             (2)  A *franking credit arises in that account.

             (3)  The amount of the *franking credit is so much of the *franking debit as is attributable to the period before that day.

             (4)  The *franking credit arises at the same time as the *franking debit arises.

Part 3‑35Insurance business

Division 320Life insurance companies

Table of Subdivisions

             Guide to Division 320

320‑A   Preliminary

320‑B    What is included in a life insurance company’s assessable income

320‑C    Deductions and capital losses

320‑D   Income tax, taxable income and tax loss of life insurance companies

320‑E    No‑TFN contributions of life insurance companies that are RSA providers

320‑F    Complying superannuation asset pool

320‑H   Segregation of assets to discharge exempt life insurance policy liabilities

320‑I     Transfers of business

Guide to Division 320

320‑1  What this Division is about

This Division provides for the taxation of life insurance companies in a broadly comparable way to other entities that derive similar kinds of income.

Because of the nature of the business of life insurance companies, the Division contains special rules for working out their taxable income.

Those rules:

•      include certain amounts in assessable income;

•      identify certain amounts of exempt income and non‑assessable non‑exempt income;

•      identify specific deductions.

Life insurance companies can have one or both of these taxable incomes for any income year for the purposes of working out their income tax for that year:

•      a taxable income of the complying superannuation class, which consists of taxable income that relates to complying superannuation business, and is taxed at the rate of tax that applies to complying superannuation funds;

•      a taxable income of the ordinary class, which consists of taxable income that relates to other businesses and is taxed at the corporate tax rate.

Life insurance companies can also have tax losses that correspond to those 2 classes. The Division provides that tax losses of a particular class can be deducted only from incomes in respect of that class.

The Division ensures that the income tax worked out on the basis of these taxable incomes and tax losses is a single amount of income tax on one taxable income.

The Division also contains rules for segregating the assets of life insurance companies into:

•      assets that relate to complying superannuation business;

•      assets that relate to immediate annuity and other exempt business.

This Division also ensures that life insurance companies that are RSA providers are liable to pay tax on no‑TFN contributions income.

Operative provisions

Subdivision 320‑APreliminary

320‑5  Object of Division

             (1)  The object of this Division is to provide for the taxation of *life insurance companies in a broadly comparable way to other entities that *derive similar kinds of income.

             (2)  To achieve this object, the Division:

                     (a)  identifies certain amounts that are included in the assessable income, or are *exempt income or *non‑assessable non‑exempt income, of a *life insurance company; and

                     (b)  identifies certain amounts that a life insurance company can deduct; and

                     (c)  enables a life insurance company to have taxable incomes and *tax losses of the following classes for the purposes of working out its income tax for an income year:

                              (i)  the *complying superannuation class;

                             (ii)  the *ordinary class; and

                     (d)  contains other provisions necessary to enable the income tax on the taxable income of a life insurance company to be worked out.

Note:          Section 320‑5 of the Income Tax (Transitional Provisions) Act 1997 provides that the tax consequences of certain transfers of assets of a life insurance company that is a friendly society to a complying superannuation fund are to be disregarded.

Subdivision 320‑BWhat is included in a life insurance company’s assessable income

Guide to Subdivision 320‑B

320‑10  What this Subdivision is about

This Subdivision provides for certain amounts to be included in a life insurance company’s assessable income and for certain other amounts to be exempt income or non‑assessable non‑exempt income.

Table of sections

Operative provisions

320‑15      Assessable income—various amounts

320‑30      Assessable income—special provision for certain income years

320‑35      Exempt income

320‑37      Non‑assessable non‑exempt income

320‑45      Tax treatment of gains or losses from CGT events in relation to complying superannuation assets

Operative provisions

320‑15  Assessable income—various amounts

             (1)  A *life insurance company’s assessable income includes:

                     (a)  the total amount of the *life insurance premiums paid to the company in the income year; and

                     (b)  amounts received or recovered under *contracts of reinsurance (except amounts that relate to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies) to the extent to which they relate to the *risk components of claims paid under *life insurance policies; and

                     (c)  any amount received or recovered that is a refund, or in the nature of a refund, of the life insurance premium paid under a contract of reinsurance (except any amount that relates to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies); and

                    (ca)  any reinsurance commission received or recovered by the company in respect of a contract of reinsurance (except any commission that relates to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies); and

                     (d)  any amount received under a profit‑sharing arrangement contained in, or entered into in relation to, a contract of reinsurance; and

                   (da)  the *transfer values of assets transferred by the company from a *complying superannuation asset pool under subsection 320‑180(1) or 320‑195(3); and

                   (db)  the transfer values of assets transferred by the company to a complying superannuation asset pool under subsection 320‑180(3) or 320‑185(1); and

                     (e)  if an asset (other than money) is transferred from or to a complying superannuation asset pool under subsection 320‑180(1) or (3), to a complying superannuation asset pool under section 320‑185 or from a complying superannuation asset pool under subsection 320‑195(2) or (3)—the amount (if any) that is included in the company’s assessable income of the income year in which the asset was transferred because of section 320‑200; and

                      (f)  the transfer values of assets transferred by the company from the company’s *segregated exempt assets under subsection 320‑235(1) or 320‑250(2); and

                     (g)  if an asset (other than money) is transferred to the company’s segregated exempt assets under subsection 320‑235(3) or section 320‑240—the amount (if any) that is included in the company’s assessable income because of section 320‑255; and

                     (h)  subject to subsection (2), if the *value, at the end of the income year, of the company’s liabilities under the *net risk components of life insurance policies is less than the value, at the end of the previous income year, of those liabilities—an amount equal to the difference; and

Note:       Where the value at the end of the income year exceeds the value at the end of the previous income year, the excess can be deducted: see section 320‑85.

                      (i)  amounts specified in agreements under section 295‑260; and

                      (j)  *specified roll‑over amounts paid to the company; and

                    (ja)  amounts imposed by the company in respect of risk riders for *ordinary investment policies in an income year in which the company did not receive any life insurance premiums for those policies; and

                     (k)  fees and charges (not otherwise included in, or taken into account in working out, the company’s assessable income) imposed by the company in respect of life insurance policies; and

                      (l)  if the company is an *RSA provider—contributions made to *RSAs provided by the company that would be included in the company’s assessable income under Subdivision 295‑C if that Subdivision applied to the company.

             (2)  Paragraph (1)(h) does not cover any liabilities under:

                     (a)  a *life insurance policy that provides for *participating benefits or *discretionary benefits; or

                     (b)  an *exempt life insurance policy; or

                     (c)  a *funeral policy.

             (3)  An amount included in assessable income under paragraph (1)(i) is included for the income year of the *life insurance company that includes the last day of the transferor’s income year to which the agreement referred to in section 295‑260 relates.

320‑30  Assessable income—special provision for certain income years

             (1)  This section applies to a *life insurance company for each of the following income years (each a relevant income year):

                     (a)  the income year in which 1 July 2000 occurs;

                     (b)  the 4 following income years.

Note:          The effect of this section is modified when the life insurance business of a life insurance company is transferred to another life insurance company: see section 320‑340.

             (2)  If:

                     (a)  the *value of the company’s liabilities at the end of 30 June 2000 under its *continuous disability policies (being the value used by the company for the purposes of its *income tax return);

exceeds

                     (b)  the value of the company’s liabilities at the end of 30 June 2000 under the *net risk components of its continuous disability policies as calculated under subsection 320‑85(4);

the company’s assessable income for each relevant income year includes an amount equal to one‑fifth of the excess.

             (3)  However, if a *life insurance company ceases in a relevant income year to carry on *life insurance business or to have any liabilities under the *net risk components of *continuous disability policies, subsection (2) does not apply for that income year or any future income years but the company’s assessable income for that income year includes so much of the excess referred to in subsection (2) as has not been included in the company’s assessable income for any previous relevant income years.

320‑35  Exempt income

                   These amounts *derived by a *life insurance company are exempt from income tax:

                     (a)  amounts of *ordinary income and *statutory income accrued before 1 July 1988 that were derived from assets that have become *complying superannuation assets;

                     (b)  if the company is an *RSA provider—any amounts that are disregarded because of paragraph 320‑137(3)(d) or (e) in working out the company’s taxable income of the *complying superannuation class.

320‑37  Non‑assessable non‑exempt income

             (1)  These amounts *derived by a *life insurance company are not assessable income and are not *exempt income:

                     (a)  amounts of ordinary income and statutory income derived from *segregated exempt assets, being income that relates to the period during which the assets were segregated exempt assets;

                     (b)  amounts of ordinary income and statutory income derived from the *disposal of units in a *pooled superannuation trust;

                     (c)  if an *Australian/overseas fund or an *overseas fund established by the company derived foreign establishment amounts—the foreign resident proportion of the foreign establishment amounts;

                     (d)  if the company is a *friendly society:

                              (i)  amounts derived before 1 July 2001 that are exempt from income tax under section 50‑1; and

                             (ii)  amounts derived on or after 1 July 2001 but before 1 January 2003, that are attributable to *income bonds, *funeral policies or *sickness policies; and

                            (iii)  amounts derived on or after 1 July 2001 but before 1 January 2003, that are attributable to *scholarship plans and would have been exempt from income tax under section 50‑1 if they had been received before 1 July 2001; and

                            (iv)  amounts derived on or after 1 January 2003 that are attributable to income bonds, funeral policies or *sickness policies, that were issued before 1 January 2003; and

                             (v)  amounts derived on or after 1 January 2003 that are attributable to scholarship plans issued before 1 January 2003 and that would have been exempt from income tax if they had been received before 1 July 2001.

Note:          The effect of this section is modified when the life insurance business of a life insurance company is transferred to another life insurance company: see section 320‑325.

          (1A)  For the purposes of paragraph (1)(c), foreign establishment amounts for the *life insurance company means the total amount of assessable income that was *derived in the income year:

                     (a)  in the course of the carrying on by the company of a business in a foreign country at or through a *permanent establishment of the company in that country; and

                     (b)  from sources in that or any other foreign country; and

                     (c)  from assets that:

                              (i)  are attributable to the permanent establishment; and

                             (ii)  are held to meet the liabilities under the *life insurance policies issued by the company at or through the permanent establishment.

             (2)  For the purposes of paragraph (1)(c), the foreign resident proportion of the *foreign establishment amounts is the amount worked out using the formula:

where:

all foreign establishment policy liabilities means the average value for the income year (as calculated by an *actuary) of the policy liabilities (as defined in the *Valuation Standard) for all *life insurance policies that:

                     (a)  were included in the class of *life insurance business to which the company’s *Australian/overseas fund or *overseas fund relates; and

                     (b)  were issued by the company at or through the *permanent establishment to which the foreign establishment amounts relate.

foreign resident foreign establishment policy liabilities means the average value for the income year (as calculated by an *actuary) of the policy liabilities (as defined in the *Valuation Standard) for all *life insurance policies that:

                     (a)  are *foreign resident life insurance policies; and

                     (b)  were issued by the company at or through the *permanent establishment to which the foreign establishment amounts relate.

320‑45  Tax treatment of gains or losses from CGT events in relation to complying superannuation assets

             (1)  If a *CGT event happens in respect of a *CGT asset that is a *complying superannuation asset of a *life insurance company, section 295‑85 and 295‑90 applies for the purpose of working out the amount of any *capital gain or *capital loss that arises from the event.

Note:          See Subdivision 295‑B of the Income Tax (Transitional Provisions) Act 1997 for rules about cost base for assets owned by superannuation entities at the end of 30 June 1988.

             (2)  Subsection (1) has effect despite anything in Division 230.

Subdivision 320‑CDeductions and capital losses

Guide to Subdivision 320‑C

320‑50  What this Subdivision is about

This Subdivision specifies particular deductions that are available to a life insurance company, specifies particular amounts that a life insurance company cannot deduct and contains provisions relating to a life insurance company’s capital losses.

Table of sections

Operative provisions

320‑55      Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from complying superannuation assets

320‑60      Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from segregated exempt assets

320‑65      Deduction for life insurance premiums in respect of life insurance policies that provide for participating or discretionary benefits

320‑70      No deduction for life insurance premiums in respect of certain life insurance policies payable only on death or disability

320‑75      Deduction for ordinary investment policies

320‑80      Deduction for certain claims paid under life insurance policies

320‑85      Deduction for increase in value of liabilities under net risk components of life insurance policies

320‑87      Deduction for assets transferred from or to complying superannuation asset pool

320‑100    Deduction for life insurance premiums paid under certain contracts of reinsurance

320‑105    Deduction for assets transferred to segregated exempt assets

320‑107    Deductions for increased amount of lump sum death benefit

320‑110    Deduction for interest credited to income bonds

320‑111    Deduction for funeral policy payout

320‑112    Deduction for scholarship plan payout

320‑115    No deduction for amounts credited to RSAs

320‑120    Capital losses from assets other than complying superannuation assets or segregated exempt assets

320‑125    Capital losses from complying superannuation assets

Operative provisions

320‑55  Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from complying superannuation assets

             (1)  This section applies to a *life insurance company in respect of *life insurance policies where the company’s liabilities under the policies are to be discharged out of *complying superannuation assets.

             (2)  The company can deduct:

                     (a)  the amounts of the *life insurance premiums received in respect of the policies that are transferred to its *complying superannuation assets in the income year;

less:

                     (b)  so much of those amounts as relate to the company’s liability to pay amounts on the death or disability of a person.

             (3)  For the purposes of subsection (2) only, the amount of a *life insurance premium that relates to the company’s liability to pay amounts on the death or disability of a person is:

                     (a)  if the policy provides for *participating benefits or *discretionary benefits—nil; or

                     (b)  if paragraph (a) does not apply and the policy states that the whole or a specified part of the premium is payable in respect of such a liability—the whole or that part of the premium, as appropriate; or

                     (c)  if neither paragraph (a) nor (b) applies:

                              (i)  if the policy is an *endowment policy—10% of the premium; or

                             (ii)  if the policy is a *whole of life policy—30% of the premium; or

                            (iii)  otherwise—so much of the premium as an *actuary determines to be attributable to such a liability.

320‑60  Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from segregated exempt assets

                   A *life insurance company can deduct the amounts of *life insurance premiums transferred in the income year to its *segregated exempt assets under subsection 320‑240(3).

320‑65  Deduction for life insurance premiums in respect of life insurance policies that provide for participating or discretionary benefits

                   A *life insurance company can deduct the amounts of *net premiums received in respect of *life insurance policies (other than *complying superannuation life insurance policies or *exempt life insurance policies) that provide for *participating benefits or *discretionary benefits.

320‑70  No deduction for life insurance premiums in respect of certain life insurance policies payable only on death or disability

             (1)  A *life insurance company cannot deduct any part of the amounts of *life insurance premiums received in respect of *life insurance policies under which amounts are to be paid only on the death or disability of a person.

             (2)  This section does not apply to:

                     (a)  *life insurance policies that provide for *participating benefits or *discretionary benefits; or

                     (b)  funeral policies.

320‑75  Deduction for ordinary investment policies

             (1)  This section applies to a *life insurance company in respect of *ordinary investment policies issued by the company.

             (2)  The company can deduct, in respect of *life insurance premiums received in the income year for those policies:

                     (a)  the sum of the *net premiums;

less:

                     (b)  so much of the net premiums as an *actuary determines to be attributable to fees and charges charged in that income year.

             (3)  In making a determination under subsection (2), an *actuary is to have regard to:

                     (a)  the changes over the income year in the sum of the *net current termination values of the policies; and

                     (b)  the movements in those values during the income year.

             (4)  In addition, if an *actuary determines that:

                     (a)  there has been a reduction in the income year (the current year) of exit fees that were imposed in respect of those policies in a previous income year; and

                     (b)  the reduction (or a part of it) has not been taken into account in a determination under subsection (2) for the current year;

the company can deduct so much of that reduction as has not been so taken into account.

320‑80  Deduction for certain claims paid under life insurance policies

             (1)  A *life insurance company can deduct the amounts paid in respect of the *risk components of claims paid under *life insurance policies during the income year.

             (2)  The risk component of a claim paid under a *life insurance policy is:

                     (a)  if:

                              (i)  the policy does not provide for *participating benefits or *discretionary benefits; and

                             (ii)  the policy is neither an *exempt life insurance policy nor a *funeral policy; and

                            (iii)  an amount is payable under the policy only on the death or disability of the insured person;

                            the amount paid under the policy as a result of the occurrence of that event; or

                     (b)  if the policy provides for participating benefits or discretionary benefits or is an exempt life insurance policy or a funeral policy—nil; or

                     (c)  otherwise—the amount paid under the policy as a result of the death or disability of the insured person less the *current termination value of the policy (calculated by an *actuary) immediately before the death, or the occurrence of the disability, of the person.

             (3)  Except as provided by subsection (1), a *life insurance company cannot deduct amounts paid in respect of claims under *life insurance policies.

320‑85  Deduction for increase in value of liabilities under net risk components of life insurance policies

             (1)  A *life insurance company can deduct the amount (if any) by which the *value, at the end of the income year, of its liabilities under the *net risk components of *life insurance policies exceeds the value, at the end of the previous income year, of those liabilities.

Note 1:       Where the value at the end of the income year is less than the value at the end of the previous income year, the difference is included in assessable income: see paragraph 320‑15(1)(h).

Note 2:       Section 320‑85 of the Income Tax (Transitional Provisions) Act 1997 makes special provision in respect of the calculation of the value of a life insurance company’s liabilities under the net risk components of life insurance policies at the end of the income year immediately preceding the income year in which 1 July 2000 occurs.

             (2)  Subsection (1) does not cover any liabilities under:

                     (a)  a *life insurance policy that provides for *participating benefits or *discretionary benefits; or

                     (b)  an *exempt life insurance policy; or

                     (c)  a *funeral policy.

             (3)  If a *life insurance policy is a *disability policy (other than a *continuous disability policy), the value at a particular time of the liabilities of the *life insurance company under the *net risk component of the policy is the *current termination value of the component at that time (calculated by an *actuary).

             (4)  In the case of *life insurance policies other than policies to which subsection (3) applies, the value at a particular time of the liabilities of the *life insurance company under the *net risk components of the policies is the amount calculated by an *actuary to be:

                     (a)  the sum of the policy liabilities (as defined in the *Valuation Standard) in respect of the net risk components of the policies at that time;

less

                     (b)  the sum of any cumulative losses (as defined in the Valuation Standard) for the net risk components of the policies at that time.

320‑87  Deduction for assets transferred from or to complying superannuation asset pool

             (1)  A *life insurance company can deduct the *transfer values of assets that are transferred by the company in the income year from a *complying superannuation asset pool under subsection 320‑180(1) or 320‑195(3).

             (2)  A *life insurance company can deduct the *transfer values of assets that are transferred by the company in the income year to a *complying superannuation asset pool under subsection 320‑180(3) or 320‑185(1).

             (3)  If an asset (other than money) is transferred by a *life insurance company:

                     (a)  from a *complying superannuation asset pool under subsection 320‑180(1) or 320‑195(2) or (3); or

                     (b)  to a complying superannuation asset pool under subsection 320‑180(3) or section 320‑185;

the company can deduct the amount (if any) that it can deduct because of section 320‑200.

320‑100  Deduction for life insurance premiums paid under certain contracts of reinsurance

                   A *life insurance company can deduct amounts that:

                     (a)  were paid by the company in the income year as *life insurance premiums under *contracts of reinsurance; and

                     (b)  do not relate to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies.

320‑105  Deduction for assets transferred to segregated exempt assets

             (1)  A *life insurance company can deduct the *transfer values of assets transferred in the income year to the company’s *segregated exempt assets under subsection 320‑235(3) or 320‑240(1).

             (2)  If an asset (other than money) is transferred to a *life insurance company’s *segregated exempt assets under subsection 320‑235(3) or section 320‑240, the company can deduct the amount (if any) that it can deduct because of section 320‑255.

320‑107  Deductions for increased amount of lump sum death benefit

             (1)  A *life insurance company can deduct an amount under this section if:

                     (a)  it pays a lump sum because of the death of a person to the trustee of the deceased’s estate or an individual who was a *spouse, former spouse or *child of the deceased at the time of death or payment; and

                     (b)  the payment is in relation to the commutation of, or is of the capital amount payable on the termination of, an *exempt life insurance policy or a life insurance policy covered by subparagraph (b)(i) of the definition of complying superannuation life insurance policy in subsection 995‑1(1) while the policy was held by the deceased by reason that the deceased would have been entitled to receive the *annuity concerned; and

                     (c)  it increases the lump sum by an amount (the tax saving amount) so that the amount of the lump sum is the amount that the company could have paid if no tax were payable on amounts included in its assessable income under Subdivision 320‑B.

             (2)  The company can deduct the amount for the income year in which the lump sum is paid.

             (3)  The amount the company can deduct is:

                   where:

complying superannuation class rate is the rate of tax imposed on the *complying superannuation class of the company’s taxable income for the income year.

             (4)  The amount the company can deduct for a sum paid because of the death of a person to the trustee of the deceased’s estate is so much of the subsection (3) amount as is appropriate having regard to the extent to which individuals referred to in paragraph (1)(a) can reasonably be expected to benefit from the estate.

320‑110  Deduction for interest credited to income bonds

             (1)  A *life insurance company that is a *friendly society can deduct interest credited in the income year to the holders of *income bonds issued after 31 December 2002 where the interest accrued on or after 1 January 2003.

             (2)  This section has effect despite subsection 320‑80(3).

320‑111  Deduction for funeral policy payout

             (1)  A *life insurance company that is a *friendly society can deduct the amount of a benefit provided in the income year by the company under a *funeral policy issued after 31 December 2002, reduced by so much of the sum of the amounts deducted or deductible by the company under section 320‑75 for any income year as is reasonably related to the benefit.

             (2)  This section has effect despite subsection 320‑80(3).

320‑112  Deduction for scholarship plan payout

             (1)  A *life insurance company that is a *friendly society can deduct the amount of a benefit it provides in the income year and on or after 1 January 2003:

                     (a)  under a *scholarship plan covered by subsection (2) or (3); and

                     (b)  to, or on behalf of, a person nominated in the plan as a beneficiary whose education is to be helped by the benefit;

reduced by so much of the sum of the amounts deducted or deductible by the company under section 320‑75 for any income year as is reasonably related to the benefit.

             (2)  This subsection covers a *scholarship plan issued by the *life insurance company after 31 December 2002.

             (3)  This subsection covers a *scholarship plan if:

                     (a)  the plan was issued by the *life insurance company before 1 January 2003; and

                     (b)  no amount received by the company on or after 1 January 2003 and attributable to the plan is *non‑assessable non‑exempt income of the company under paragraph 320‑37(1)(d).

             (4)  This section has effect despite subsection 320‑80(3).

320‑115  No deduction for amounts credited to RSAs

                   A *life insurance company that is an *RSA provider cannot deduct amounts credited to *RSAs.

320‑120  Capital losses from assets other than complying superannuation assets or segregated exempt assets

             (1)  This section applies to assets (ordinary assets) of a *life insurance company other than:

                     (a)  *complying superannuation assets; or

                     (b)  *segregated exempt assets.

             (2)  In working out a *life insurance company’s *net capital gain or *net capital loss for the income year, *capital losses from ordinary assets can be used only to reduce *capital gains from ordinary assets.

             (3)  If some or all of a *capital loss from an ordinary asset cannot be applied in an income year, the unapplied amount can be applied in the next income year in which the company’s *capital gains from ordinary assets exceed the company’s capital losses (if any) from ordinary assets.

             (4)  If the company has 2 or more unapplied *net capital losses from ordinary assets, the company must apply them in the order in which they were made.

Note:          This section affects the amount of assessable income that is to be taken into account in working out a taxable income or tax loss of the ordinary class: see sections 320‑139 and 320‑143.

320‑125  Capital losses from complying superannuation assets

             (1)  In working out a *life insurance company’s *net capital gain or *net capital loss for the income year, *capital losses from *complying superannuation assets can be used only to reduce *capital gains from complying superannuation assets.

             (2)  If some or all of a *capital loss from a *complying superannuation asset cannot be applied in an income year, the unapplied amount can be applied in the next income year in which the company’s *capital gains from *complying superannuation assets exceed the company’s capital losses (if any) from complying superannuation assets.

             (3)  If the company has 2 or more unapplied *net capital losses from *complying superannuation assets, the company must apply them in the order in which they were made.

Note:          This section affects the amount of assessable income that is to be taken into account in working out a taxable income or tax loss of the complying superannuation class: see sections 320‑137 and 320‑141.

Subdivision 320‑DIncome tax, taxable income and tax loss of life insurance companies

Guide to Subdivision 320‑D

320‑130  What this Subdivision is about

This Subdivision explains how a life insurance company’s income tax is worked out.

For that purpose, this Subdivision enables a life insurance company to have taxable incomes and tax losses of the following classes:

•      the complying superannuation class;

•      the ordinary class.

320‑131  Overview of Subdivision

Working out the income tax

             (1)  In any income year, a life insurance company can have:

                     (a)  a taxable income of the complying superannuation class and/or a taxable income of the ordinary class; or

                     (b)  a tax loss of the complying superannuation class and/or a tax loss of the ordinary class; or

                     (c)  a taxable income of one class and a tax loss of the other class.

Note:          The taxable incomes mentioned in paragraph (a) are taxed at different rates: see section 23A of the Income Tax Rates Act 1986.

             (2)  Taxable incomes and tax losses of both classes are taken into account in working out the amount of income tax that the company has to pay for the income year (see section 320‑134). That amount is then taken to be the income tax on the company’s taxable income for that income year.

Working out taxable income and tax loss of each class

             (3)  In general, the rules in this Act about working out a company’s taxable income or tax loss, or deducting a company’s tax loss, apply to a life insurance company in relation to:

                     (a)  working out a taxable income or tax loss of a particular class; or

                     (b)  deducting a tax loss of a particular class.

             (4)  However, that general rule is subject to the following:

                     (a)  sections 320‑137 to 320‑143, which allocate amounts of incomes and deductions for the purposes of working out a taxable income or tax loss of a particular class;

                     (b)  subsections 320‑141(2) and 320‑143(2), which provide that tax losses of a particular class can be deducted only from incomes in respect of that class;

                     (c)  section 320‑149, which sets out the provisions in this Act that have effect only in relation to a taxable income or tax loss of the ordinary class.

Table of sections

General rules

320‑133    Object of Subdivision

320‑134    Income tax of a life insurance company

320‑135    Taxable income and tax loss of each of the 2 classes

Taxable income and tax loss of life insurance companies

320‑137    Taxable income—complying superannuation class

320‑139    Taxable income—ordinary class

320‑141    Tax loss—complying superannuation class

320‑143    Tax loss—ordinary class

320‑149    Provisions that apply only in relation to the ordinary class

General rules

320‑133  Object of Subdivision

             (1)  The object of this Subdivision is to ensure that:

                     (a)  for the purposes of working out the amount of a *life insurance company’s income tax for an income year:

                              (i)  the company’s taxable income or *tax loss of one *class is worked out separately from its taxable income or tax loss of the other class; and

                             (ii)  the company’s tax losses of a particular class can be deducted only from its incomes in respect of that class; and

                     (b)  for the purposes of this Act, that amount of income tax is treated as the company’s income tax on its taxable income for that income year.

             (2)  In subsection (1), a class means the *complying superannuation class or the *ordinary class.

320‑134  Income tax of a life insurance company

Working out the income tax

             (1)  Work out a *life insurance company’s income tax for an income year under section 4‑10 as follows:

                     (a)  apply steps 1 and 2 of the method statement in subsection 4‑10(3) to work out separately the amount that would be the company’s basic income tax liability for its taxable income of each *class for that year;

                     (b)  treat the sum of these amounts as the company’s basic income tax liability for that year and apply step 4 of the method statement to subtract its *tax offsets from that sum.

             (2)  For the purposes of this Act:

                     (a)  the income tax worked out in accordance with subsection (1) is taken to be the company’s income tax on its taxable income for the income year; and

                     (b)  except as provided by subsection (1) of this section and sections 320‑135 to 320‑149, the company’s taxable income for that year is taken to be equal to the sum of the company’s taxable incomes of the 2 *classes for that year.

Note:          This means that there is only one assessment in respect of the company’s taxable income for the income year and that the income tax constitutes only one debt to the Commonwealth.

Working out the income tax on certain assumptions

             (3)  Subsection (1) also has effect in relation to working out an amount that would be the company’s income tax if certain assumptions were made. It has that effect in the same way as it has effect in relation to working out the company’s income tax under section 4‑10 (except in regard to those assumptions).

Note:          This means, for example, subsection (1) also has effect in relation to working out the amount of a life insurance company’s income tax on the basis of the tax offset priority rules in Division 63.

320‑135  Taxable income and tax loss of each of the 2 classes

             (1)  Subject to the other provisions in this Subdivision:

                     (a)  this Act has effect for a *life insurance company in relation to working out a taxable income of a particular *class in the same way as it has effect in relation to working out a taxable income of any other company; and

                     (b)  this Act has effect for a life insurance company in relation to working out or deducting a *tax loss of a particular class in the same way as it has effect in relation to working out or deducting a tax loss of any other company.

             (2)  Sections 320‑137 to 320‑143 have effect in addition to other provisions in this Act that relate to working out a taxable income or *tax loss, or deducting a tax loss (as appropriate).

             (3)  Nothing in this Subdivision prevents a *life insurance company from:

                     (a)  having taxable incomes, or *tax losses, of both *classes for the same income year; or

                     (b)  having a taxable income of one class and a tax loss of the other class for the same income year.

Note:          In certain circumstances, a life insurance company can have a taxable income and a tax loss of the same class in an income year (see Subdivision 165‑B as it has effect under this Subdivision).

Taxable income and tax loss of life insurance companies

320‑137  Taxable income—complying superannuation class

             (1)  A *life insurance company’s taxable income of the complying superannuation class is a taxable income worked out under this Act on the basis of only:

                     (a)  assessable income of the company that is covered by subsection (2); and

                     (b)  deductions of the company that are covered by subsection (4); and

                     (c)  *tax losses of the company that are of the *complying superannuation class.

Note:          For the usual way of working out a taxable income: see subsection 4‑15(1). For other ways of working out a taxable income: see subsection 4‑15(2).

Relevant assessable income

             (2)  This subsection covers the following assessable income of a *life insurance company:

                     (a)  assessable income *derived by the company from the investment of its *complying superannuation assets in relation to the period during which those assets were complying superannuation assets;

                     (b)  so much of the amount that is included in the company’s assessable income because of paragraph 320‑15(1)(a) as is equal to the total *transfer value of assets transferred in the income year by the company to a *complying superannuation asset pool under subsection 320‑185(3);

                     (c)  if an asset (other than money) is transferred by the company from a complying superannuation asset pool under subsection 320‑180(1) or 320‑195(2) or (3)—amounts that are included in the company’s assessable income because of section 320‑200;

                     (d)  amounts that are included in the company’s assessable income because of paragraph 320‑15(1)(db), (i) or (j);

                     (e)  amounts that are included in the company’s assessable income under subsection 115‑280(4);

                      (f)  subject to subsection (3), so much of the company’s assessable income for the income year as is:

                              (i)  the total amount credited during that year to the *RSAs provided by the company; less

                             (ii)  the total amount debited during that year from the RSAs.

Amounts disregarded for RSAs

             (3)  In working out the amount mentioned in paragraph (2)(f), disregard the following amounts:

                     (a)  contributions credited to the *RSAs that would not be included in the company’s assessable income under Subdivision 295‑C if that Subdivision applied to the company;

                     (b)  amounts debited from the RSAs that are benefits paid to, or in respect of, the holders of the RSAs;

                     (c)  income tax debited from the RSAs;

                     (d)  if an *annuity was paid from an RSA in respect of the whole of the income year, or the whole of the part of the income year in which the RSA existed, the total amount credited to the RSA during the income year;

                     (e)  if an annuity was paid from an RSA in respect of a part, but not the whole, of the portion of the income year in which the RSA existed, so much of the total amount credited to the RSA during the income year as is equal to the amount worked out using the following formula:

Relevant deductions

             (4)  This subsection covers the following deductions of a *life insurance company:

                     (a)  amounts that the company can deduct under section 320‑55;

                     (b)  amounts that the company can deduct (other than any *tax losses) in respect of the investment of the company’s *complying superannuation assets in relation to the period during which those assets were complying superannuation assets;

                     (c)  amounts that the company can deduct under section 320‑87 because of subsection (1) or paragraph (3)(a) of that section;

                     (d)  amounts that the company can deduct under subsection 115‑280(1).

320‑139  Taxable income—ordinary class

                   A *life insurance company’s taxable income of the ordinary class is a taxable income worked out under this Act on the basis of only:

                     (a)  assessable income of the company that is not covered by subsection 320‑137(2); and

                     (b)  amounts (other than *tax losses) that the company can deduct and are not covered by subsection 320‑137(4); and

                     (c)  tax losses of the company that are of the *ordinary class.

Note:          For the usual way of working out a taxable income: see subsection 4‑15(1). For other ways of working out a taxable income: see subsection 4‑15(2).

320‑141  Tax loss—complying superannuation class

Working out a tax loss of the complying superannuation class

             (1)  A *life insurance company’s *tax loss of the complying superannuation class is a tax loss worked out under this Act on the basis of only:

                     (a)  assessable income of the company that is covered by subsection 320‑137(2); and

                     (b)  deductions of the company that are covered by subsection 320‑137(4); and

                     (c)  *net exempt income of the company that is attributable to *exempt income *derived:

                              (i)  from the company’s *complying superannuation assets; and

                             (ii)  in relation to the period during which those assets were complying superannuation assets.

Note:          For the usual way of working out a tax loss: see section 36‑10. For other ways of working out a tax loss: see section 36‑25.

Deducting a tax loss of the complying superannuation class

             (2)  A *life insurance company’s *tax loss of the complying superannuation class can be deducted under this Act only from:

                     (a)  *net exempt income of the company that is attributable to *exempt income *derived:

                              (i)  from the company’s *complying superannuation assets; and

                             (ii)  in relation to the period during which those assets were complying superannuation assets; and

                     (b)  assessable income of the company that is covered by subsection 320‑137(2), reduced by deductions of the company that are covered by subsection 320‑137(4).

Note:          For the usual way of deducting a tax loss: see section 36‑17. For other ways of deducting a tax loss: see section 36‑25.

320‑143  Tax loss—ordinary class

Working out a tax loss of the ordinary class

             (1)  A *life insurance company’s *tax loss of the ordinary class is a tax loss worked out under this Act on the basis of only:

                     (a)  assessable income of the company that is not covered by subsection 320‑137(2); and

                     (b)  amounts (other than tax losses) that the company can deduct and are not covered by subsection 320‑137(4); and

                     (c)  *net exempt income of the company that is not attributable to *exempt income *derived:

                              (i)  from the company’s *complying superannuation assets; and

                             (ii)  in relation to the period during which those assets were complying superannuation assets.

Note:          For the usual way of working out a tax loss: see section 36‑10. For other ways of working out a tax loss: see section 36‑25.

Deducting a tax loss of the ordinary class

             (2)  A *life insurance company’s *tax loss of the ordinary class can be deducted under this Act only from:

                     (a)  *net exempt income of the company that is not attributable to *exempt income *derived:

                              (i)  from the company’s *complying superannuation assets; and

                             (ii)  in relation to the period during which those assets were complying superannuation assets; and

                     (b)  assessable income of the company that is not covered by subsection 320‑137(2), reduced by amounts (other than tax losses) that the company can deduct and are not covered by subsection 320‑137(4).

Note:          For the usual way of deducting a tax loss: see section 36‑17. For other ways of deducting a tax loss: see section 36‑25.

320‑149  Provisions that apply only in relation to the ordinary class

             (1)  The provisions covered by subsection (2):

                     (a)  have effect as provided by section 320‑135 in relation to a *life insurance company’s taxable income, or *tax loss, of the *ordinary class; but

                     (b)  have no effect in relation to the company’s taxable income, or tax loss, of the *complying superannuation class.

             (2)  This subsection covers these provisions:

                     (a)  section 36‑55;

                     (b)  Division 165 (except Subdivision 165‑CD).

Example 1: A life insurance company that has an amount of excess franking offsets will need to recalculate its tax loss of the ordinary class under section 36‑55. But its tax loss of the complying superannuation class is unaffected by that section.

Example 2: A life insurance company that fails to meet the relevant tests of Division 165 will need to recalculate the ordinary class of its taxable income and tax loss under Subdivision 165‑B. But the complying superannuation class of its taxable income and tax loss are unaffected by that Subdivision.

Subdivision 320‑ENo‑TFN contributions of life insurance companies that are RSA providers

Guide to Subdivision 320‑E

320‑150  What this Subdivision is about

This Subdivision makes Subdivisions 295‑I and 295‑J apply to life insurance companies that are RSA providers.

The consequence is that those life insurance companies are liable to pay tax on no‑TFN contributions income under Subdivision 295‑I. They may also be entitled to a tax offset under Subdivision 295‑J.

Table of sections

Operative provisions

320‑155    Subdivisions 295‑I and 295‑J apply to companies that are RSA providers

Operative provisions

320‑155  Subdivisions 295‑I and 295‑J apply to companies that are RSA providers

             (1)  Despite subsection 295‑5(4), Subdivisions 295‑I and 295‑J apply to a *life insurance company that is an *RSA provider.

             (2)  For the purposes of the application of those Subdivisions to a *life insurance company, a contribution included in the assessable income of the company under paragraph 320‑15(1)(l) is taken to have been included under Subdivision 295‑C.

Subdivision 320‑FComplying superannuation asset pool

Guide to Subdivision 320‑F

320‑165  What this Subdivision is about

This Subdivision explains how a life insurance company can segregate assets (to be known as a complying superannuation asset pool) to be used for the sole purpose of discharging its complying superannuation liabilities.

Table of sections

Operative provisions

320‑170    Establishment of complying superannuation asset pool

320‑175    Valuations of complying superannuation assets and complying superannuation liabilities for each valuation time

320‑180    Consequences of a valuation under section 320‑175

320‑185    Transfer of assets to complying superannuation asset pool otherwise than as a result of a valuation under section 320‑175

320‑190    Complying superannuation liabilities

320‑195    Transfer of assets and payment of amounts from a complying superannuation asset pool otherwise than as a result of a valuation under section 320‑175

320‑200    Consequences of transfer of assets to or from complying superannuation asset pool

Operative provisions

320‑170  Establishment of complying superannuation asset pool

             (1)  A *life insurance company may, on or after 1 July 2000, segregate in accordance with subsections (2) and (3) any of its assets for the sole purpose of discharging its *complying superannuation liabilities out of those assets.

          (1A)  Except as provided by section 320‑170 of the Income Tax (Transitional Provisions) Act 1997, an asset is taken not to be included in the *complying superannuation assets unless the whole of the asset is included among those assets.

             (2)  The assets segregated must, at the time of the segregation, be a representative sample of all the company’s assets that support its *complying superannuation liabilities immediately before the segregation.

             (3)  The assets segregated must have, as at the time of the segregation, a total *transfer value that does not exceed the sum of:

                     (a)  the company’s *complying superannuation liabilities as at that time; and

                     (b)  any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of the assets segregated.

             (4)  A *life insurance company that segregates assets as mentioned in subsections (1) to (3) at a time after 1 July 2000 but before 1 October 2000 is taken to have segregated those assets in accordance with those subsections on 1 July 2000.

             (5)  If a segregation of assets is made in accordance with the above subsections, the company must use the segregated assets, and any other assets afterwards included among the segregated assets, only for the purpose of discharging its *complying superannuation liabilities.

             (6)  The assets from time to time segregated are together to be known as the complying superannuation asset pool and each asset from time to time included among those assets is to be known as a complying superannuation asset.

             (7)  In this Subdivision:

                     (a)  a reference to the transfer of an asset to, or from, the *complying superannuation asset pool:

                              (i)  is a reference to the inclusion of the asset among the segregated assets, or the exclusion of an asset from the segregated assets, as the case may be; and

                             (ii)  includes a reference to the transfer of money to, or from, the complying superannuation asset pool, as the case may be; and

                     (b)  if an asset transferred to or from the complying superannuation asset pool is money, a reference to the *transfer value of the asset transferred is a reference to the amount of the money.

320‑175  Valuations of complying superannuation assets and complying superannuation liabilities for each valuation time

             (1)  A *life insurance company that has established a *complying superannuation asset pool must cause the following amounts to be calculated within the period of 60 days starting immediately after each *valuation time:

                     (a)  the total *transfer value of the company’s *complying superannuation assets as at the valuation time;

                     (b)  the company’s *complying superannuation liabilities as at the valuation time.

Note:          The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see section 713‑525.

             (2)  These are the valuation times:

                     (a)  the end of the income year in which the *complying superannuation asset pool was established;

                     (b)  the end of each later income year.

Note 1:       The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see sections 713‑525 and 713‑585.

Note 2:       A life insurance company that fails to comply with this section is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.

320‑180  Consequences of a valuation under section 320‑175

Transfer from the complying superannuation asset pool

             (1)  If the total *transfer value of the company’s *complying superannuation assets as at a *valuation time exceeds the sum of:

                     (a)  the company’s *complying superannuation liabilities as at that time; and

                     (b)  any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;

the company must transfer, from the *complying superannuation asset pool, assets of any kind having a total transfer value equal to the excess.

             (2)  A transfer under subsection (1) must be made within the period of 30 days starting immediately after:

                     (a)  the day on which the total *transfer value and the *complying superannuation liabilities (as at the *valuation time) were calculated; or

                     (b)  if those amounts were calculated on different days—the later of those days.

The transfer, once made, is taken to have been made at the valuation time (whether or not the transfer is made within those 30 days).

Note:          A life insurance company that fails to comply with subsections (1) and (2) is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.

Transfer to the complying superannuation asset pool

             (3)  If the total *transfer value of the company’s *complying superannuation assets as at a *valuation time is less than the sum of:

                     (a)  the company’s *complying superannuation liabilities as at that time; and

                     (b)  any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;

the company can transfer, to the *complying superannuation asset pool, assets of any kind having a total transfer value not exceeding the difference.

             (4)  A transfer under subsection (3) is taken to have been made at the *valuation time if it is made within the period of 30 days starting immediately after:

                     (a)  the day on which the total *transfer value and the *complying superannuation liabilities (as at the valuation time) were calculated; or

                     (b)  if those amounts were calculated on different days—the later of those days.

320‑185  Transfer of assets to complying superannuation asset pool otherwise than as a result of a valuation under section 320‑175

             (1)  If a *life insurance company determines, at a time other than a *valuation time, that the total *transfer value of the company’s *complying superannuation assets as at that time is less than the sum of:

                     (a)  the company’s *complying superannuation liabilities as at that time; and

                     (b)  any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;

the company can transfer, to the *complying superannuation asset pool, assets of any kind having a total transfer value not exceeding the difference.

             (2)  A *life insurance company can at any time transfer an asset of any kind to a *complying superannuation asset pool in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.

             (3)  A *life insurance company can transfer to a *complying superannuation asset pool in an income year assets of any kind having a total *transfer value not exceeding the total amount of the *life insurance premiums paid to the company in that income year for the purchase of *complying superannuation life insurance policies.

             (4)  Except as provided by this section and subsection 320‑180(3), a *life insurance company cannot transfer an asset to a *complying superannuation asset pool.

320‑190  Complying superannuation liabilities

             (1)  The amount of the *complying superannuation liabilities of a *life insurance company is to be worked out in accordance with subsection (2) in respect only of *life insurance policies issued by the company:

                     (a)  that are *complying superannuation life insurance policies; and

                     (b)  the liabilities under which are to be discharged out of the company’s *complying superannuation assets.

             (2)  The amount of the complying superannuation liabilities of a *life insurance company at a particular time is the sum of the following amounts at that time, as calculated by an *actuary:

                     (a)  for policies providing for *participating benefits or *discretionary benefits:

                              (i)  the values of supporting assets, as defined in the *Valuation Standard; and

                             (ii)  the *policy owners’ retained profits;

                     (b)  for other policies—the *current termination values.

320‑195  Transfer of assets and payment of amounts from a complying superannuation asset pool otherwise than as a result of a valuation under section 320‑175

             (1)  If:

                     (a)  a *life insurance policy issued by a *life insurance company becomes an *exempt life insurance policy; and

                     (b)  immediately before the policy became an exempt life insurance policy, the policy was a policy referred to in subsection 320‑190(1);

the company can transfer from a *complying superannuation asset pool, to its *segregated exempt assets, assets of any kind whose total *transfer value does not exceed the company’s liabilities in respect of the policy.

             (2)  A *life insurance company can at any time transfer an asset from a *complying superannuation asset pool in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.

             (3)  If a *life insurance company:

                     (a)  imposes any fees or charges in respect of *complying superannuation assets; or

                     (b)  imposes any fees or charges in respect of *complying superannuation life insurance policies other than policies:

                              (i)  that provide *superannuation death benefits, *disability superannuation benefits or temporary disability benefits of a kind referred to in paragraph 295‑460(c), that are *participating benefits; and

                             (ii)  the liabilities under which are to be discharged out of the company’s *complying superannuation asset pool; or

                     (c)  determines, at a time other than a *valuation time, that the total *transfer value of the company’s complying superannuation assets as at that time exceeds the sum of:

                              (i)  the company’s *complying superannuation liabilities at that time; and

                             (ii)  any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;

the company must, when the fees or charges are imposed or the excess is determined, as the case may be, transfer, from the *complying superannuation asset pool, assets having a total transfer value equal to the fees, charges or excess, as the case may be.

             (4)  If:

                     (a)  any liabilities arise for the discharge of which a *life insurance company’s *complying superannuation asset pool is established; or

                     (b)  any expenses are incurred by a life insurance company directly in respect of *complying superannuation assets in relation to a period during which the assets are complying superannuation assets; or

                     (c)  any liabilities to pay *PAYG instalments, or income tax, that are attributable to the company’s *complying superannuation assets;

the life insurance company must pay, from the complying superannuation asset pool, any amounts required to discharge the liabilities, or amounts equal to the expenses (as appropriate).

320‑200  Consequences of transfer of assets to or from complying superannuation asset pool

             (1)  This section applies if:

                     (a)  an asset (other than money) is transferred from a *complying superannuation asset pool under subsection 320‑180(1) or 320‑195(2) or (3); or

                     (b)  an asset (other than money) is transferred to a complying superannuation asset pool under subsection 320‑180(3) or section 320‑185.

             (2)  In determining:

                     (a)  for the purposes of this Act (other than Parts 3‑1 and 3‑3) whether an amount is included in, or can be deducted from, the assessable income of a *life insurance company in respect of the transfer of the asset; or

                     (b)  for the purposes of Parts 3‑1 and 3‑3:

                              (i)  whether the company made a *capital gain in respect of the transfer of the asset; or

                             (ii)  whether the company made a *capital loss in respect of the transfer of the asset;

the company is taken:

                     (c)  to have sold, immediately before the transfer, the asset transferred for a consideration equal to its *market value; and

                     (d)  to have purchased the asset again at the time of the transfer for a consideration equal to its market value.

          (2A)  Without limiting subsection (2), where the asset transferred is a *depreciating asset, Division 40 has effect for the company as if:

                     (a)  in relation to the sale of the asset that is taken to have occurred under paragraph (2)(c):

                              (i)  the sale were a *balancing adjustment event; and

                             (ii)  the *termination value of the asset for that event were equal to the consideration for the sale under that paragraph; and

                            (iii)  the company had stopped *holding the asset at the time of the sale; and

                     (b)  in relation to the purchase of the asset that is taken to have occurred under paragraph (2)(d):

                              (i)  the company had only begun to hold the asset after the purchase; and

                             (ii)  the first element of the asset’s *cost were equal to the consideration for the purchase under that paragraph; and

                            (iii)  the company had acquired the asset from an *associate of the company.

Note:          This means that, amongst other things, as a result of the transfer:

·      the asset’s cost for the purposes of working out a deduction under Division 40 is reset; and

·      the company’s assessable income might be adjusted under section 40‑285.

             (3)  If, apart from this subsection and section 320‑55, a *life insurance company could deduct an amount or make a *capital loss as a result of a transfer of an asset to or from its *complying superannuation asset pool, the deduction or capital loss is disregarded until:

                     (a)  the asset ceases to exist; or

                     (b)  the asset, or a greater than 50% interest in it, is *acquired by an entity other than an entity that is an *associate of the company immediately after the transfer.

             (4)  Subsection (3) does not apply in relation to an amount that the company can deduct under a provision in Division 40.

Subdivision 320‑HSegregation of assets to discharge exempt life insurance policy liabilities

Guide to Subdivision 320‑H

320‑220  What this Subdivision is about

This Subdivision explains how a life insurance company can segregate assets to be used for the sole purpose of discharging its liabilities under life insurance policies where the income derived by the company from those policies is exempt from income tax.

Table of sections

Operative provisions

320‑225    Segregation of assets for purpose of discharging exempt life insurance policy liabilities

320‑230    Valuations of segregated exempt assets and exempt life insurance policy liabilities for each valuation time

320‑235    Consequences of a valuation under section 320‑230

320‑240    Transfer of assets to segregated exempt assets otherwise than as a result of a valuation under section 320‑230

320‑245    Exempt life insurance policy liabilities

320‑246    Exempt life insurance policy

320‑247    Policy split into an exempt life insurance policy and another life insurance policy

320‑250    Transfer of assets and payment of amounts from segregated exempt assets otherwise than as a result of a valuation under section 320‑230

320‑255    Consequences of transfer of assets to or from segregated exempt assets

Operative provisions

320‑225  Segregation of assets for purpose of discharging exempt life insurance policy liabilities

             (1)  A *life insurance company may, on or after 1 July 2000, segregate in accordance with subsections (2) and (3) any of its assets for the sole purpose of discharging its *exempt life insurance policy liabilities out of those assets.

Note:          Section 320‑225 of the Income Tax (Transitional Provisions) Act 1997 provides that a life insurance company may transfer a part of an asset to its segregated exempt assets before 1 October 2000.

          (1A)  Except as provided by section 320‑225 of the Income Tax (Transitional Provisions) Act 1997, an asset is taken not to be included in the segregated assets under this Subdivision unless the whole of the asset is included among the segregated assets.

             (2)  The assets segregated must, at the time of the segregation, be a representative sample of all the company’s assets that support its *exempt life insurance policy liabilities immediately before the segregation.

             (3)  The assets segregated must have, as at the time of the segregation, a total *transfer value that does not exceed the amount of the company’s *exempt life insurance policy liabilities as at that time.

             (4)  A *life insurance company that segregates assets as mentioned in subsections (1) to (3) at a time after 1 July 2000 but before 1 October 2000 is taken to have segregated those assets in accordance with those subsections on 1 July 2000.

             (5)  If a segregation of assets is made in accordance with the above subsections, the company must use the *segregated exempt assets, and any other assets afterwards included among the segregated assets, only for the purpose of discharging its *exempt life insurance policy liabilities.

             (6)  In this Subdivision:

                     (a)  a reference to the transfer of an asset to, or from, a *life insurance company’s *segregated exempt assets:

                              (i)  is a reference to the inclusion of an asset among the segregated exempt assets, or the exclusion of an asset from the segregated exempt assets, as the case may be; and

                             (ii)  includes a reference to the transfer of money to, or from, those assets, as the case may be; and

                     (b)  if an asset transferred to or from those assets is money, a reference to the *transfer value of the asset transferred is a reference to the amount of the money.

320‑230  Valuations of segregated exempt assets and exempt life insurance policy liabilities for each valuation time

             (1)  A *life insurance company that has segregated any of its assets in accordance with section 320‑225 must cause the following amounts to be calculated within the period of 60 days starting immediately after each *valuation time:

                     (a)  the total *transfer value of the company’s *segregated exempt assets as at the valuation time;

                     (b)  the amount of the company’s *exempt life insurance policy liabilities as at the valuation time.

Note:          The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see section 713‑525.

             (2)  These are the valuation times:

                     (a)  the end of the income year in which the segregation occurred;

                     (b)  the end of each later income year.

Note 1:       The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see sections 713‑525 and 713‑585.

Note 2:       A life insurance company that fails to comply with this section is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.

320‑235  Consequences of a valuation under section 320‑230

Transfer from the segregated exempt assets

             (1)  If:

                     (a)  the total *transfer value of the company’s *segregated exempt assets as at a *valuation time;

exceeds

                     (b)  the amount of the company’s *exempt life insurance policy liabilities as at that time;

the company must transfer, from the segregated exempt assets, assets of any kind having a total transfer value equal to the excess.

             (2)  A transfer under subsection (1) must be made within the period of 30 days starting immediately after:

                     (a)  the day on which the total *transfer value and the *exempt life insurance policy liabilities (as at the *valuation time) were calculated; or

                     (b)  if those amounts were calculated on different days—the later of those days.

The transfer, once made, is taken to have been made at the valuation time (whether or not the transfer is made within those 30 days).

Note:          A life insurance company that fails to comply with subsections (1) and (2) is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.

Transfer to the segregated exempt assets

             (3)  If:

                     (a)  the total *transfer value of the company’s *segregated exempt assets as at a *valuation time;

is less than

                     (b)  the amount of the company’s *exempt life insurance policy liabilities as at that time;

the company can transfer, to the segregated exempt assets, assets of any kind having a total transfer value not exceeding the difference.

             (4)  A transfer under subsection (3) is taken to have been made at the *valuation time if it is made within the period of 30 days starting immediately after:

                     (a)  the day on which the total *transfer value and the *exempt life insurance policy liabilities (as at the valuation time) were calculated; or

                     (b)  if those amounts were calculated on different days—the later of those days.

320‑240  Transfer of assets to segregated exempt assets otherwise than as a result of a valuation under section 320‑230

             (1)  If a *life insurance company determines, at a time other than a *valuation time, that:

                     (a)  the total *transfer value of the company’s *segregated exempt assets as at that time;

is less than

                     (b)  the company’s *exempt life insurance policy liabilities as at that time;

the company can transfer, to the segregated exempt assets, assets of any kind having a total transfer value not exceeding the difference.

             (2)  A *life insurance company can at any time transfer an asset of any kind to its *segregated exempt assets in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.

             (3)  A *life insurance company can transfer, to its *segregated exempt assets in an income year, assets of any kind having a total *transfer value not exceeding the total amount of the *life insurance premiums paid to the company in that income year for the purchase of *exempt life insurance policies.

             (4)  Except as provided by this section and subsections 320‑195(1) and 320‑235(3), a *life insurance company cannot transfer an asset to its *segregated exempt assets.

320‑245  Exempt life insurance policy liabilities

             (1)  The amount of the *exempt life insurance policy liabilities of a *life insurance company is to be worked out in accordance with subsection (2) in respect only of *life insurance policies issued by the company:

                     (a)  that are *exempt life insurance policies; and

                     (b)  the liabilities under which are to be discharged out of the company’s *segregated exempt assets.

             (2)  The amount of the exempt life insurance policy liabilities of a *life insurance company at a particular time is the sum of the following amounts at that time, as calculated by an *actuary:

                     (a)  for policies providing for allocated benefits (other than *participating benefits or *discretionary benefits)—the *current termination values;

                     (b)  for policies providing for participating benefits or discretionary benefits:

                              (i)  the values of supporting assets, as defined in the *Valuation Standard; and

                             (ii)  the *policy owner’s retained profits;

                     (c)  for other policies—the policy liabilities, as defined in the Valuation Standard.

             (3)  An *exempt life insurance policy provides for allocated benefits if:

                     (a)  the policy:

                              (i)  is held by the trustee of a *complying superannuation fund; and

                            (iii)  provides for an *allocated pension; or

                     (b)  the policy:

                              (i)  is held by a *life insurance company other than the life insurance company that issued the policy; and

                             (ii)  is a *segregated exempt asset of the life insurance company that issued the policy; and

                            (iii)  provides for an allocated pension; or

                     (c)  the policy provides for an *allocated annuity.

320‑246  Exempt life insurance policy

             (1)  An exempt life insurance policy is a *life insurance policy (other than an *RSA):

                     (a)  that is held by the trustee of a *complying superannuation fund and provides solely for the discharge of the fund’s liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by the fund; or

                     (b)  that is held by the trustee of a *pooled superannuation trust, where:

                              (i)  the policy provides solely for the discharge of the liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by complying superannuation funds; and

                             (ii)  the funds are unit holders of the trust; or

                     (c)  that is held by another *life insurance company and is a *segregated exempt asset of that other company; or

                     (d)  that is held by the trustee of a *constitutionally protected fund; or

                     (e)  that provides for an *immediate annuity that:

                              (i)  was purchased on or before 9 December 1987; or

                             (ii)  is a *superannuation income stream; or

                            (iii)  satisfies whichever of the conditions in subsection (3) are applicable; or

                      (f)  that provides for either or both of the following:

                              (i)  a *personal injury annuity, payments of which are exempt from income tax under Division 54;

                             (ii)  a *personal injury lump sum, payment of which is exempt from income tax under Division 54.

Note:          A part of a life insurance policy may be taken to be an exempt life insurance policy under section 320‑247.

             (3)  The following table sets out the conditions mentioned in subparagraph (1)(e)(iii):

 

Annuity conditions

Item

Column 1

The condition in column 2 applies in the following circumstances ...

Column 2

The condition is that ...

1

there is a residual capital value (within the meaning of section 27H of the Income Tax Assessment Act 1936) in relation to the *immediate annuity.

the contract under which the annuity is payable does not permit the residual capital value to exceed the annuity’s purchase price (within the meaning of that section).

2

the contract under which the *immediate annuity is payable provides that the annuity is payable until the end of a term of years certain.

the contract does not permit the total of the amounts paid for the annuity’s commutation (whether in whole or in part) to exceed the annuity’s purchase price (within the meaning of that section), reduced by the sum of the deductible amounts excluded from assessable income under that section.

3

the contract under which the *immediate annuity is payable:

(a) provides that the annuity is payable until the later of:

(i) the death of a person (or the death of the last of 2 or more persons to die); or

(ii) the end of a term of years certain; and

(b) permits one or more amounts (commutation payments) to become payable before the end of the term of years certain for the annuity’s commutation (whether in whole or in part).

the contract does not permit the total of the commutation payments that may become payable before the end of the term of years certain to exceed the annuity’s purchase price (within the meaning of that section), reduced by the sum of the deductible amounts excluded from assessable income under that section.

4

all circumstances.

there is no unreasonable deferral of the payments of the *immediate annuity, having regard to:

(a) to the extent to which the payments depend on the returns of the investment of the assets of the *life insurance company paying the annuity—when the payments are made and when those returns are *derived; and

(b) to the extent to which the payments do not depend on those returns—the relative sizes of the annual totals of the payments from year to year; and

(c) any other relevant factors.

320‑247  Policy split into an exempt life insurance policy and another life insurance policy

When is a part of a policy taken to be an exempt life insurance policy?

             (1)  A part of a *life insurance policy (the original policy) is taken to be an *exempt life insurance policy for the purposes of this Act if:

                     (a)  the part provides solely for the discharge of the liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by a *complying superannuation fund; and

                     (b)  the trustee of the fund holds the original policy.

             (2)  A part of a *life insurance policy (the original policy) is taken to be an *exempt life insurance policy for the purposes of this Act if:

                     (a)  the part provides solely for the discharge of liabilities that are attributable to the liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by *complying superannuation funds; and

                     (b)  the trustee of a *pooled superannuation trust holds the original policy; and

                     (c)  the funds are unit holders of the trust.

What happens to the rest of the policy?

             (3)  If a part of a policy (the original policy) is taken to be an *exempt life insurance policy under subsection (1) or (2), the rest of the original policy is taken to be another *life insurance policy for the purposes of this Act.

320‑250  Transfer of assets and payment of amounts from segregated exempt assets otherwise than as a result of a valuation under section 320‑230

             (1)  A *life insurance company can at any time transfer an asset from its*segregated exempt assets in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.

             (2)  If a *life insurance company:

                     (a)  imposes any fees or charges in respect of *segregated exempt assets; or

                     (b)  imposes any fees or charges in respect of *exempt life insurance policies where the liabilities under the policies are to be discharged out of the company’s segregated exempt assets; or

                     (c)  determines, at a time other than a *valuation time, that the total *transfer value of the company’s segregated exempt assets as at that time exceeds the amount of the company’s *exempt life insurance policy liabilities as at that time;

the company must, when the fees or charges are imposed or the excess is determined, as the case may be, transfer from the segregated exempt assets, assets having a total transfer value equal to the fees, charges or excess, as the case may be.

             (3)  If:

                     (a)  any liabilities arise for the discharge of which a *life insurance company has *segregated exempt assets; or

                     (b)  any expenses are incurred by a life insurance company directly in respect of segregated exempt assets in relation to a period during which the assets are segregated exempt assets;

the life insurance company must pay from the segregated exempt assets any amounts required to discharge the liabilities or amounts equal to the expenses, as the case may be.

320‑255  Consequences of transfer of assets to or from segregated exempt assets

             (1)  This section applies if:

                     (a)  an asset (other than money) is transferred from the company’s *segregated exempt assets under subsection 320‑235(1) or 320‑250(1) or (2); or

                     (b)  an asset (other than money) is transferred to the company’s *segregated exempt assets under subsection 320‑235(3) or section 320‑240.

             (2)  In determining:

                     (a)  for the purposes of this Act (other than Division 40 and Parts 3‑1 and 3‑3) whether an amount is included in, or can be deducted from, the assessable income of a *life insurance company in respect of the transfer of the asset; or

                     (b)  for the purposes of Parts 3‑1 and 3‑3:

                              (i)  whether the company made a *capital gain in respect of the transfer; or

                             (ii)  whether the company made a *capital loss in respect of the transfer;

the company is taken:

                     (c)  to have sold, immediately before the transfer, the asset transferred for a consideration equal to its *market value; and

                     (d)  to have purchased the asset again at the time of the transfer for a consideration equal to its market value.

             (3)  If, apart from this subsection, section 320‑60 and subsection 320‑105(1), a *life insurance company could deduct an amount or apply a *capital loss as a result of the transfer of an asset to its *segregated exempt assets, the deduction or capital loss is disregarded until:

                     (a)  the asset ceases to exist; or

                     (b)  the asset, or a greater than 50% interest in it, is *acquired by an entity other than an entity that is an *associate of the company, immediately after the acquisition.

          (3A)  Subsection (3) does not apply in relation to an amount that the company can deduct under a provision in Division 40.

             (4)  A *life insurance company cannot deduct an amount or apply a *capital loss as a result of the transfer of an asset from its *segregated exempt assets.

             (6)  If a *depreciating asset is transferred to the *segregated exempt assets of a *life insurance company, then, in determining for the purposes of Division 40 whether an amount is included in, or can be deducted from, the company’s assessable income as a result of the transfer, the company is taken:

                     (a)  to have, at the time immediately before the transfer, sold the asset for a consideration equal to its *market value at that time; and

                     (b)  to have, at the time of the transfer, purchased the asset again for a consideration equal to its market value at that time.

             (7)  If a *depreciating asset that has been included in the *segregated exempt assets of a *life insurance company since the asset was acquired by the company or the initial segregation of those assets took place is transferred from those assets, then the company must assume for the purposes of Division 40 that:

                     (a)  if the asset’s *market value at the time of the transfer is greater than its *adjustable value at that time, the company:

                              (i)  had, at the time immediately before the transfer, sold the asset for a consideration equal to its adjustable value at that time; and

                             (ii)  had, at the time of the transfer, purchased the asset again for a consideration equal to its adjustable value at that time; or

                     (b)  if the asset’s market value at the time of the transfer is equal to or less than its adjustable value at that time, the company:

                              (i)  had, at the time immediately before the transfer, sold the asset for a consideration equal to its market value at that time; and

                             (ii)  had, at the time of the transfer, purchased the asset again for a consideration equal to its market value at that time.

             (8)  If a *depreciating asset that was previously transferred to the *segregated exempt assets of a *life insurance company is transferred from those assets, then, the company must assume, for the purposes of Division 40 that:

                     (a)  if the asset’s *market value at the time of its transfer from those assets is greater than its market value at the time when it was transferred to those assets, the company:

                              (i)  had, at