Taxation Laws Amendment Act (No. 2) 1994 (82 of 1994)

Part 3   AMENDMENT OF THE INCOME TAX ASSESSMENT ACT 1936

Division 5   Amendments relating to foreign investment funds and foreign life insurance policies

Subdivision A   Holding company exemptions involving insurance, real property or mixed activities

73   Insertion of new section

After section 507 of the Principal Act the following section is inserted in Division 5 of Part XI:

Exemption for interest in foreign holding company of foreign life insurance company

Interest in holding company disregarded

"507A.(1) If:

(a) at the end of the notional accounting period of a foreign company (the 'holding company'), the taxpayer had an interest in the holding company that consisted of shares included in a class of shares that were quoted on the stock market of an approved stock exchange; and

(b) the holding company requirements set out in subsection (2) are satisfied; and

(c) the subsidiary company requirements set out in subsection (3) are satisfied;

the interest is disregarded for the purposes of the application of the operative provision to the taxpayer in relation to the holding company in respect of that notional accounting period.

Holding company requirements

"(2) The holding company requirements are that:

(a) at the end of the notional accounting period, either:

(i) the holding company was included by an approved stock exchange in a class of companies designated by the stock exchange as engaged in the carrying on of life insurance business; or

(ii) the holding company was included by an international sectoral classification system named in regulations made for the purposes of section 499 or, until regulations are so made, by an international sectoral classification system named in Schedule 5, in a class of companies designated by the system as engaged in the carrying on of life insurance business; and

(b) throughout the notional accounting period, or the part of that period in which the taxpayer had the interest in the holding company, as the case may be, shares in the holding company that were included in the class mentioned in paragraph (1)(a) were widely held, and actively traded on a regular basis, on a stock market of an approved stock exchange.

Subsidiary company requirements

"(3) The subsidiary company requirements are that:

(a) throughout the notional accounting period (the 'interest holding period'), or the part (also the 'interest holding period') of that period in which the taxpayer had the interest in the holding company, as the case may be, one or more other foreign companies were wholly-owned subsidiaries of the holding company; and

(b) if there was only one such subsidiary, that subsidiary was:

(i) throughout the interest holding period, authorised under the law of its place of residence to carry on life insurance business; and

(ii) at the test time, principally engaged in the active carrying on of life insurance business; and

(c) if there were 2 or more such subsidiaries:

(i) throughout the interest holding period, at least one subsidiary was authorised under the law of its place of residence to carry on life insurance business; and

(ii) at their test time, the principal activities of all the subsidiaries, considered together, were the active carrying on of life insurance business.

"Test time"

"(4) The 'test time' in relation to a subsidiary is:

(a) if the notional accounting period is one in respect of which the accounts of the subsidiary are made out-the end of that period; or

(b) if the notional accounting period is the taxpayer's year of income-the end of the last period in respect of which the accounts of the subsidiary were made out that ended before the end of that year of income.

Single subsidiary-"principally engaged in active carrying on of life insurance business"

"(5) For the purposes of subparagraph (3)(b)(ii), a subsidiary was principally engaged in the active carrying on of life insurance business at the test time if at that time the gross value of its assets for use in carrying on life insurance business was 50% or more of the gross value of all of its assets. For this purpose, subsections 507(3) to (11) (inclusive) apply in the same way as they apply for the purpose of paragraph 507(2)(b).

More than one subsidiary-"principal activities, considered together, were active carrying on of life insurance business"

"(6) For the purposes of subparagraph (3)(c)(ii), the question whether, at their test time, the principal activities of 2 or more subsidiaries, considered together, were the active carrying on of life insurance business is determined as follows:

(a) first, work out for each subsidiary (including by applying subsections 507(3) to (11) (inclusive) in the same way as they apply for the purpose of paragraph 507(2)(b)):

(i) the gross value, at its test time, of the subsidiary's assets for use in carrying on life insurance business; and

(ii) the gross value, at its test time, of all of the subsidiary's assets; and

(b) secondly, work out:

(i) the sum of the gross values in subparagraph (a)(i) for all of the subsidiaries; and

(ii) the sum of the gross values in subparagraph (a)(ii) for all of the subsidiaries; and

(c) thirdly, if the sum in subparagraph (b)(i) is 50% or more of the sum in subparagraph (b)(ii), then, at their test time, the principal activities of all of the subsidiaries, considered together, were the active carrying on of life insurance business.".