Consolidation Reference Manual
You can still refer to the Consolidation reference manual for consolidation information that has not been impacted by changes in the legislation.
C9 Tax liabilities
C9-6 Life insurance companies
C9-6-512 Modified membership rules for a joining life insurance company's wholly-owned subsidiary held indirectly through one or more interposed entities
Description
The 'one in, all in' rule, which provides that all eligible wholly-owned subsidiaries are included in a consolidated group, is modified in certain circumstances where the subsidiary is a life insurance company. This example shows how these modifications extend to a wholly-owned subsidiary of a joining life insurance company where the membership interests in the subsidiary are held indirectly through one or more interposed entities.
Commentary
Subdivision 713-L of the Income Tax Assessment Act 1997 (ITAA 1997) modifies the 'one in, all in' rule to ensure that the special rules in Division 320, regarding the segregation of assets, apply appropriately to the head company of a consolidated group that includes a life insurance company. This preserves the mechanism used to determine income (including capital gains) that should be taxed at 15% or that should be exempt from tax.
| Entity | Section excluded under | Reason |
|---|---|---|
| A wholly-owned company or unit trust where membership interests are held indirectly through one or more interposed entities by the life insurance company and some but not all of the key interests* are complying superannuation/FHSA assets | Section 713-510 | The income derived from the complying superannuation/FHSA is subject to tax at 15% |
| A wholly-owned company or unit trust where membership interests are held indirectly through one or more interposed entities by the life insurance company and some but not all of the key interests* are segregated exempt assets | Section 713-510 | The income derived from segregated exempt assets is exempt from tax |
*The key interests are the membership interests the life insurance company owns directly in the entity or an interposed entity.
Example
Facts
HeadCo beneficially owns 100% of the membership interests in LifeCo, both Australian-resident companies. LifeCo beneficially owns 100% of the membership interests in ACo and BCo (both Australian-resident companies) and trust C (an Australian-resident unit trust). All of the membership interests in DCo (an Australian-resident company) are held indirectly by LifeCo through two interposed entities (i.e. ACo and BCo).
LifeCo holds all of its membership interests in ACo and BCo as complying superannuation/first home saver account (FHSA) assets. LifeCo holds 80% of its membership interests in trust C as ordinary assets and holds the remaining 20% as segregated exempt assets.
Figure 1 shows the pre-consolidation group structure.
Figure 1: Group structure before consolidation
Eligibility
If HeadCo chooses to consolidate, which entities will be eligible to be members of the consolidated group?
Under the modified membership rules in subsection 713-510(1) for consolidated groups that include a life insurance company, the following entities will be subsidiary members of the consolidated group:
- •
- ACo and BCo, which are 100% beneficially owned by LifeCo and whose membership interests are complying superannuation/FHSA assets
- •
- DCo, which is 100% beneficially owned by LifeCo through two interposed entities (i.e. ACo and BCo) in which all the key interests are complying superannuation/FHSA assets of LifeCo, and
- •
- Life Co.
Trust C will be precluded from becoming a member of the consolidated group as the membership interests held by LifeCo are a mixture of ordinary and segregated exempt assets.
References
Income Tax Assessment Act 1997 , Division 320 as amended by First Home Saver Accounts (Consequential Amendment) Act 2008
Income Tax Assessment Act 1997 , Subdivision 713-L as amended by:
- •
- Tax Laws Amendment (2004 Measures No. 7) Act 2004 Schedule 6, Part 5
- •
- First Home Saver Accounts (Consequential Amendment) Act 2008
Explanatory Memorandum to the Tax Laws Amendment (2004 Measures No. 7) Bill 2004, Chapter 6
History
Revision history
Section C9-6-512 first published 16 December 2005.
Further revisions are described below.
| Date | Amendment | Reason |
|---|---|---|
| 6.5.11 | Removal of notes on proposed changes to consolidation rules. | |
| References to virtual PST assets and virtual PST replaced. | Enactment of First Home Saver Accounts (Consequential Amendment) Act 2008 |
Current at 6 May 2011