Taxation Laws Amendment Act (No. 1) 1999 (16 of 1999)

Schedule 8   Passive income of insurance companies

Income Tax Assessment Act 1936

1   Subsections 446(2) to (5)

Repeal the subsections, substitute:

(2) Despite anything in subsection (1), the passive income of a life assurance company of a statutory accounting period is calculated using the formula:

where:

adjusted passive income means the amount that, apart from this subsection, would be the passive income of the company of the statutory accounting period.

total assets means the average of the total assets of the company for the statutory accounting period.

untainted average calculated liabilities means so much of the total average calculated liabilities of the company for the statutory accounting period as is referable to life assurance policies that do not give rise to tainted services income of the company of any statutory accounting period.

(3) In subsection (2):

total average calculated liabilities has the same meaning as in Division 8 of Part III.

(4) Despite anything in subsection (1), the passive income of a general insurance company of a statutory accounting period is worked out using the formula:

where:

adjusted passive income means the amount that, apart from this subsection, would be the passive income of the company of the statutory accounting period.

net assets means the excess at the end of the statutory accounting period of the total assets of the company over the total liabilities of the company.

outstanding claims means the amount that the company would, at the end of the statutory accounting period, based on proper and reasonable estimates, need to set aside and invest in order to meet liabilities of the company that have arisen or will arise:

(a) under general insurance policies (including reinsurance policies, but not including life assurance policies); and

(b) in respect of events that occurred during or before the period.

solvency amount is the amount worked out under subsection (5).

tainted outstanding claims means so much of the outstanding claims of the company at the end of the statutory accounting period as is referable to general insurance policies that give rise to tainted services income of the company of any statutory accounting period.

total assets means the total assets of the company at the end of the statutory accounting period.

(5) In subsection (4):

solvency amount is the amount worked out using the formula:

| Maximum event| | Tainted outstanding claims | |Minimum solvency + | x |1- -------------------------- | | retention | | Outstanding claims |

where:

maximum event retention means the amount that, at the end of the statutory accounting period, the company has determined is the maximum that would be payable to the owners of policies as a result of the happening of any one event. The amount must be worked out on the basis of a reasonable and proper estimate.

minimum solvency means the greater of:

(a) 20% of the company's premium income (within the meaning of the Insurance Act 1973) during the statutory accounting period; and

(b) 15% of the company's outstanding claims as at the end of the statutory accounting period.

outstanding claims means the amount that the company would, at the end of the statutory accounting period, based on proper and reasonable estimates, need to set aside and invest in order to meet liabilities of the company that have arisen or will arise:

(a) under general insurance policies (including reinsurance policies, but not including life assurance policies); and

(b) in respect of events that occurred during or before the period.

tainted outstanding claims means so much of the outstanding claims of the company at the end of the statutory accounting period as is referable to general insurance policies that give rise to tainted services income of the company of any statutory accounting period.