Tax Laws Amendment (2004 Measures No. 7) Act 2005 (41 of 2005)

Schedule 6   Consolidation

Part 5   Insurance companies

Income Tax Assessment Act 1997

21   Section 713-510

Repeal the section, substitute:

713-510 Certain subsidiaries of life insurance companies cannot be members of consolidated group

(1) An entity cannot be a *subsidiary member of a *consolidated group or *consolidatable group of which a *life insurance company is a *member if:

(a) the life insurance company owns, either directly or indirectly through one or more interposed entities, all the *membership interests in the entity and either:

(i) some, but not all, of the membership interests described in subsection (3) (the key interests ) are *virtual PST assets of the life insurance company; or

(ii) some, but not all, of the key interests are *segregated exempt assets of the life insurance company; or

(b) the life insurance company owns, either directly or indirectly through one or more interposed entities, only some of the membership interests in the entity and any of the key interests are virtual PST assets or segregated exempt assets of the life insurance company.

Note: The entity could, however, be a member of another consolidated group or consolidatable group.

(2) An entity cannot continue to be a *subsidiary member of a *consolidated group of which a *life insurance company is a *member if:

(a) the life insurance company owns, either directly or indirectly through one or more interposed entities, all the *membership interests in the entity and, had the entity not been a subsidiary member of the group, either:

(i) some, but not all, of the membership interests described in subsection (3) (the key interests ) would be *virtual PST assets of the life insurance company; or

(ii) some, but not all, of the key interests would be *segregated exempt assets of the life insurance company; or

(b) the life insurance company owns, either directly or indirectly through one or more interposed entities, only some of the membership interests in the entity and, had the entity not been a subsidiary member of the group, any of the key interests would be virtual PST assets or segregated exempt assets of the life insurance company.

(3) The key interests are the *membership interests the *life insurance company owns directly in:

(a) the entity; or

(b) an interposed entity.

Life insurance companies' liabilities on joining consolidated group

713-511 Treatment of certain liabilities for income year when life insurance company joins consolidated group

(1) This section affects how paragraph 320-15(1)(h) and section 320-85 apply if:

(a) a *life insurance company becomes a *subsidiary member of a *consolidated group at a time (the joining time ); and

(b) just before the joining time, the life insurance company had one or more liabilities under the *net risk components of life insurance policies.

Note: Paragraph 320-15(1)(h) and section 320-85 both operate on the basis of a comparison of the value of the company's liabilities under the net risk components of life insurance policies at the end of the current year with the value of those liabilities at the end of the previous year, so that:

(a) that paragraph includes an amount in the company's assessable income for the current year if the value at the end of the current year is less than the value at the end of the previous income year; and

(b) that section allows a deduction for the current year if the value at the end of the current year is more than the value at the end of the previous income year.

(2) The object of this section is to ensure that the *head company of the *consolidated group bears the income tax consequences relating to a change in *value of the liabilities only after the joining time.

Note: The life insurance company bears the income tax consequences relating to a change in value of the liabilities before the joining time, because section 701-30 ensures that paragraph 320-15(1)(h) and section 320-85 apply in relation to a part of the income year before that time when the company was not a subsidiary member of a consolidated group as if that part were an income year.

(3) Paragraph 320-15(1)(h) and section 320-85 apply for the head company core purposes set out in section 701-1 (Single entity rule) as if the *value of the liabilities at the end of the last income year ending before the joining time were the value of the liabilities (for the *life insurance company) just before the joining time.