New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)

Schedule 6   Consolidation: life insurance companies

Part 3   Transitional provisions

Income Tax (Transitional Provisions) Act 1997

10   After Division 707

Insert:

Division 713 - Rules for particular kinds of entities

Table of Subdivisions

713-L Transitional relief for certain transactions relating to life insurance companies

Subdivision 713-L - Transitional relief for certain transactions relating to life insurance companies

Table of sections

713-500 Object of Subdivision

713-505 When this Subdivision applies (first case)

713-510 When this Subdivision applies (second case)

713-515 Entities must choose the relief

713-520 Conditions

713-525 Time of transfer

713-530 What the relief is

713-535 Subsequent consequences

713-540 Requirement to notify happening of new event

713-545 Discount capital gain in certain cases

713-500 Object of Subdivision

The object of this Subdivision is to give an opportunity to a group of entities that includes a life insurance company to rearrange the assets of the group for the purposes of one or more of them becoming members of a consolidated group in a way that does not attract any immediate taxation consequences.

713-505 When this Subdivision applies (first case)

(1) This Subdivision provides for a deferral of the taxation consequences that would occur because of an event (the deferral event ) happening involving an entity (the originating entity ) and another entity (the recipient entity ) if:

(a) the event occurs in connection with a life insurance company (the member life insurance company ) becoming a member of a consolidated group; and

(b) the relevant conditions in section 713-520 are met.

(2) If the originating entity is a company, the deferral event referred to in subsection (1) is a CGT event referred to in subsection (4) happening to a CGT asset (the original asset ) where, apart from this Subdivision, the happening of the event would have resulted in:

(a) an amount (other than a capital gain) being included in the originating entity's assessable income; or

(b) the originating entity making a capital gain.

(3) If the originating entity is a trust, the deferral event referred to in subsection (1) is a CGT event referred to in subsection (4) happening to a CGT asset (also the original asset ) where, apart from this Subdivision, the happening of the event would have resulted in:

(a) an amount (other than a capital gain) being included in the net income of the trust; or

(b) the trustee making a capital gain.

(4) The CGT events are:

(a) CGT events A1, B1, D1, D2, D3, E2, F1 and F2; and

(b) CGT event C2, but only if the CGT asset that ends is a unit in a unit trust that is replaced by an equivalent membership interest (the replacement interest ) in a company or in another trust.

713-510 When this Subdivision applies (second case)

(1) This Subdivision also provides for a deferral of the taxation consequences that would occur if:

(a) a life insurance company transfers an asset (also the original asset ) to its virtual PST or from its virtual PST where, apart from this Subdivision, section 320-200 of the Income Tax Assessment Act 1997 would apply to the transfer; or

(b) a life insurance company transfers an asset (also the original asset ) to its segregated exempt assets where, apart from this Subdivision, section 320-255 of the Income Tax Assessment Act 1997 would apply to the transfer;

where the transfer (also the deferral event ) is made in connection with the life insurance company (also the member life insurance company ) becoming a member of a consolidated group.

(2) The relevant conditions in section 713-520 must be met.

713-515 Entities must choose the relief

(1) This Subdivision applies only if the originating entity (for a section 713-505 case) or the life insurance company (for a section 713-510 case) chooses that it apply.

(2) The choice must be made:

(a) by the day the originating entity or the life insurance company, or the head company of the consolidated group of which it is a member, lodges its income tax return for the income year in which the deferral event happened; or

(b) within a further time allowed by the Commissioner.

713-520 Conditions

(1) For a section 713-505 case:

(a) the originating entity must be:

(i) a life insurance company that has virtual PST assets or segregated exempt assets and that is a member of a consolidatable group; or

(ii) an entity that is unable to be a member of the same consolidatable group as a life insurance company because of section 713-510 of the Income Tax Assessment Act 1997; or

(iii) an entity that is, directly or indirectly, a subsidiary of a life insurance company and is a member of the same consolidated group as the life insurance company; and

(b) the originating entity and the recipient entity must be members of the same consolidatable group or consolidated group or, if they are not, they would have been apart from section 713-510 of the Income Tax Assessment Act 1997; and

(c) any asset transferred by the originating entity must be transferred to the recipient entity at its transfer value.

(2) For both a section 713-505 case and a section 713-510 case:

(a) the total transfer values of the virtual PST assets of the member life insurance company just before a transfer of assets to which this Subdivision applies must be the same as the total transfer values of those assets just after the transfer; and

(b) the total transfer values of the segregated exempt assets of the member life insurance company just before a transfer of assets to which this Subdivision applies must be the same as the total transfer values of those assets just after the transfer.

(3) Any transfer of an asset under the deferral event must happen on or before the later of:

(a) 30 June 2004; and

(b) if the head company of the consolidated group of which the member life insurance company is a member has a substituted accounting period - the end of the head company's income year in which 30 June 2004 occurs.

713-525 Time of transfer

This Act, and the Income Tax Assessment Act 1997, apply to the transfer of an asset to which this Subdivision applies as if the asset had been transferred just before the member life insurance company became a member of the consolidated group.

713-530 What the relief is

(1) For a section 713-505 case:

(a) if the originating entity is a company:

(i) any amount (other than a capital gain) that would have been included in the originating entity's assessable income (the deferred amount ) as a result of the deferral event is not so included; and

(ii) any capital gain (the deferred gain ) that the originating entity would have made as a result of the deferral event is disregarded; and

(b) if the originating entity is a trust:

(i) any amount (other than a capital gain) that would have been included in the member life insurance company's assessable income (also the deferred amount ) as a result of the deferral event is not so included; and

(ii) any capital gain (also the deferred gain ) that the member life insurance company would have made as a result of the deferral event is disregarded.

(2) For a section 713-510 case:

(a) any amount that would have been included in the member life insurance company's assessable income (also the deferred amount ) under paragraph 320-15(e) or (g) of the Income Tax Assessment Act 1997 as a result of the deferral event is not so included; and

(b) any capital gain (also the deferred gain ) that the member life insurance company would have made as a result of the deferral event is disregarded.

713-535 Subsequent consequences

(1) This section operates if, after the deferral event happens, another event (the new event ) happens where the new event is:

(a) a CGT event happening to:

(i) the original asset; or

(ii) if the deferral event was CGT event C2 - the replacement asset; or

(b) the recipient entity ceasing to be a member of the consolidated group of which the member life insurance company is a member; or

(c) if the recipient entity is a life insurance company:

(i) the original asset being transferred to or from the company's virtual PST under section 320-180, 320-185 or 320-195 of the Income Tax Assessment Act 1997; or

(ii) the original asset being transferred to or from the company's segregated exempt assets under section 320-235, 320-240 or 320-250 of that Act; or

(d) if the originating entity is a company - the originating entity ceasing to exist.

(2) For a section 713-505 case where the originating entity is a company:

(a) the originating entity must include the deferred amount in its assessable income for the income year in which the new event happens; or

(b) the originating entity is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.

Note: If the originating entity is a subsidiary member of a consolidated group, the head company of the group will have the amount included in its assessable income or will make the capital gain.

(3) For a section 713-505 case where the originating entity is a trust:

(a) the member life insurance company must include the deferred amount in its assessable income for the income year in which the new event happens; or

(b) the member life insurance company is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.

(4) For a section 713-505 case where the originating entity is a life insurance company or a trust and the deferred amount or the deferred gain relates to an asset that was a virtual PST asset at the time when the deferral event happened, an amount equal to the deferred amount or deferred gain is taken to be an amount of assessable income to which subsection 320-205(3) of the Income Tax Assessment Act 1997 applies for the relevant entity.

(5) For a section 713-510 case:

(a) the member life insurance company must include the deferred amount in its assessable income for the income year in which the new event happens; or

(b) the member life insurance company is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.

(6) In addition, if the deferral event involved the transfer of assets from the member life insurance company's virtual PST, an amount equal to the deferred amount or deferred gain is taken to be an amount of assessable income to which subsection 320-205(3) of the Income Tax Assessment Act 1997 applies for the relevant entity.

713-540 Requirement to notify happening of new event

(1) For a section 713-505 case, the recipient entity must, if it is not a member of the same consolidated group as the originating entity when the new event happens, notify the originating entity in the approved form of the happening of the new event within 60 days after the new event happens.

(2) Subsection (1) does not apply if the new event is the originating entity ceasing to exist.

713-545 Discount capital gain in certain cases

The Income Tax Assessment Act 1997 applies as if the capital gain referred to in paragraph 713-535(2)(b), (3)(b) or (5)(b) were a discount capital gain if:

(a) the asset to which the deferral event happened is a virtual PST asset; and

(b) the asset was acquired less than 12 months before the deferral event happened; and

(c) the new event happens at least 12 months after the asset was acquired.