Tax Laws Amendment (Transfer of Provisions) Act 2010 (79 of 2010)

Schedule 5   General insurance

Part 1   Main amendments

Income Tax Assessment Act 1997

2   After Division 320

Insert:

Division 321 - General insurance companies and companies that self-insure in respect of workers' compensation liabilities

Table of Subdivisions

321-A Provision for, and payment of, claims by general insurance companies

321-B Premium income of general insurance companies

321-C Companies that self-insure in respect of workers' compensation liabilities

Subdivision 321-A - Provision for, and payment of, claims by general insurance companies

Table of sections

321-10 Assessable income to include amount for reduction in outstanding claims liability

321-15 Deduction for increase in outstanding claims liability

321-20 How value of outstanding claims liability is worked out

321-25 Deduction for claims paid during current year

321-10 Assessable income to include amount for reduction in outstanding claims liability

A*general insurance company's assessable income for the*current year includes an amount equal to the amount (if any) by which:

(a) the value, at the end of the previous income year, of the company's liability for*outstanding claims under*general insurance policies; exceeds

(b) the value, at the end of the current year, of that liability.

Note: Those values are worked out under section 321-20.

321-15 Deduction for increase in outstanding claims liability

A*general insurance company can deduct for the*current year an amount equal to the amount (if any) by which:

(a) the value, at the end of the current year, of the company's liability for*outstanding claims under*general insurance policies; exceeds

(b) the value, at the end of the previous income year, of that liability.

Note: Those values are worked out under section 321-20.

321-20 How value of outstanding claims liability is worked out

Work out the value, at the end of an income year, of a*general insurance company's liability for*outstanding claims under*general insurance policies in this way:

Method statement

Step 1. Add up the amounts that, at the end of the income year, the company determines, based on proper and reasonable estimates, to be appropriate to set aside and invest in order to meet:

(a) liabilities for outstanding claims under those policies; and

(b) direct settlement costs associated with those outstanding claims.

Step 2. Reduce the step 1 amount by so much of it as the company expects at the end of the income year to recover:

(a) under a contract of reinsurance; or

(b) in any other way;

other than under a contract of reinsurance to which subsection 148(1) of theIncome Tax Assessment Act 1936(about reinsurance with non-residents) applies.

321-25 Deduction for claims paid during current year

A*general insurance company can deduct for the*current year amounts paid during that year in respect of claims under*general insurance policies.

Subdivision 321-B - Premium income of general insurance companies

Table of sections

321-45 Assessable income to include gross premiums

321-50 Assessable income to include amount for reduction in value of unearned premium reserve

321-55 Deduction for increase in value of unearned premium reserve

321-60 How value of unearned premium reserve is worked out

321-45 Assessable income to include gross premiums

A*general insurance company's assessable income for the*current year includes the gross premiums received or receivable by the company during the current year in respect of*general insurance policies.

321-50 Assessable income to include amount for reduction in value of unearned premium reserve

A*general insurance company's assessable income for the*current year includes an amount equal to the amount (if any) by which:

(a) the value, at the end of the previous income year, of the company's unearned premium reserve; exceeds

(b) the value, at the end of the current year, of that reserve.

Note: Those values are worked out under section 321-60.

321-55 Deduction for increase in value of unearned premium reserve

A*general insurance company can deduct for the*current year an amount equal to the amount (if any) by which:

(a) the value, at the end of the current year, of the company's unearned premium reserve; exceeds

(b) the value, at the end of the previous income year, of that reserve.

Note: Those values are worked out under section 321-60.

321-60 How value of unearned premium reserve is worked out

Work out the value, at the end of an income year, of a*general insurance company's unearned premium reserve in this way:

Method statement

Step 1. Add up the gross premiums received or receivable by the company, in relation to*general insurance policies issued in the course of carrying on*insurance business, in that or an earlier income year.

Step 2. Reduce the step 1 amount by so much of the costs incurred by the company in connection with the issue of those policies as relate to the gross premiums, including, for example, costs such as:

(a) commission and brokerage fees; and

(b) administration costs of processing insurance proposals and renewals; and

(c) administration costs of collecting premiums; and

(d) selling and underwriting costs; and

(e) fire brigade charges; and

(f) stamp duty; and

(g) other charges, levies and contributions imposed by governments or governmental authorities that directly relate to general insurance policies.

Step 3. Reduce the step 2 amount by any premiums (the relevant reinsurance premiums ) paid or payable by the company, in that or an earlier income year, for the reinsurance of risks covered by those policies, except:

(a) reinsurance premiums that the company cannot deduct because of subsection 148(1) of theIncome Tax Assessment Act 1936(about reinsurance with non-residents); and

(b) reinsurance premiums that were paid or payable in respect of a particular class of*insurance business where, under the contract of reinsurance, the reinsurer agreed to pay, in respect of a loss incurred by the company that is covered by the relevant policy, some or all of the excess over an agreed amount.

Step 4. Add to the step 3 amount any reinsurance commissions received or receivable by the company that relate to the relevant reinsurance premiums.

Step 5. The value, at the end of an income year, of the unearned premium reserve is so much of the step 4 amount as the company determines, based on proper and reasonable estimates, to relate to risks covered by the policies in respect of later income years.

Subdivision 321-C - Companies that self-insure in respect of workers' compensation liabilities

Table of sections

321-80 Assessable income to include amount for reduction in outstanding claims liability

321-85 Deduction for outstanding claims liability

321-90 How value of outstanding claims liability is worked out

321-95 Deductions for claims paid during current year

321-80 Assessable income to include amount for reduction in outstanding claims liability

The assessable income for the*current year of a company that is not required by law to insure, and does not insure, against liability for workers' compensation claims includes an amount equal to the amount (if any) by which:

(a) the value, at the end of the previous income year, of the company's liability for such claims that:

(i) arose from events that occurred in that or an earlier income year; and

(ii) were not paid in full before the end of the previous income year; exceeds

(b) the value, at the end of the current year, of that liability.

Note: Those values are worked out under section 321-90.

321-85 Deduction for outstanding claims liability

A company that is not required by law to insure, and does not insure, against liability for workers' compensation claims can deduct for the*current year an amount equal to the amount (if any) by which:

(a) the value, at the end of the current year, of the company's liability for such claims that:

(i) arose from events that occurred in the current or an earlier income year; and

(ii) were not paid in full before the end of the current year; exceeds

(b) the value, at the end of the previous income year, of that liability.

Note: Those values are worked out under section 321-90.

321-90 How value of outstanding claims liability is worked out

Work out the value, at the end of an income year, of a company's liability for claims covered by section 321-80 or 321-85 by adding up the amounts that, at the end of that income year, the company determines, based on proper and reasonable estimates, to be appropriate to set aside and invest in order to meet:

(a) liabilities for those claims; and

(b) direct settlement costs associated with those claims.

321-95 Deductions for claims paid during current year

A company that is not required by law to insure, and does not insure, against liability for workers' compensation claims can deduct for the*current year amounts paid during that year in respect of such claims.