Tax Laws Amendment (2004 Measures No. 2) Act 2004 (83 of 2004)

Schedule 1   Life insurance companies

Part 1   Amendments commencing on 30 June 2000

Income Tax Assessment Act 1997

33   Subdivisions 320-D and 320-E

Repeal the Subdivisions, substitute:

Subdivision 320-D - Income tax, taxable income and tax loss of life insurance companies

Guide to Subdivision 320-D

320-130 What this Subdivision is about

This Subdivision explains how a life insurance company's income tax is worked out.

For that purpose, this Subdivision enables a life insurance company to have taxable incomes and tax losses of the following classes:

• the complying superannuation class;

• the ordinary class.

320-131 Overview of Subdivision

Working out the income tax

(1) In any income year, a life insurance company can have:

(a) a taxable income of the complying superannuation class and/or a taxable income of the ordinary class; or

(b) a tax loss of the complying superannuation class and/or a tax loss of the ordinary class; or

(c) a taxable income of one class and a tax loss of the other class.

Note: The taxable incomes mentioned in paragraph (a) are taxed at different rates: see section 23A of the Income Tax Rates Act 1986.

(2) Taxable incomes and tax losses of both classes are taken into account in working out the amount of income tax that the company has to pay for the income year (see section 320-134). That amount is then taken to be the income tax on the company's taxable income for that income year.

Working out taxable income and tax loss of each class

(3) In general, the rules in this Act about working out a company's taxable income or tax loss, or deducting a company's tax loss, apply to a life insurance company in relation to:

(a) working out a taxable income or tax loss of a particular class; or

(b) deducting a tax loss of a particular class.

(4) However, that general rule is subject to the following:

(a) sections 320-137 to 320-143, which allocate amounts of incomes and deductions for the purposes of working out a taxable income or tax loss of a particular class;

(b) subsections 320-141(2) and 320-143(2), which provide that tax losses of a particular class can be deducted only from incomes in respect of that class;

(c) section 320-149, which sets out the provisions in this Act that have effect only in relation to a taxable income or tax loss of the ordinary class.

Table of sections

General rules

320-133 Object of Subdivision

320-134 Income tax of a life insurance company

320-135 Taxable income and tax loss of each of the 2 classes

Taxable income and tax loss of life insurance companies

320-137 Taxable income - complying superannuation class

320-139 Taxable income - ordinary class

320-141 Tax loss - complying superannuation class

320-143 Tax loss - ordinary class

320-149 Provisions that apply only in relation to the ordinary class

[This is the end of the Guide.]

General rules

320-133 Object of Subdivision

(1) The object of this Subdivision is to ensure that:

(a) for the purposes of working out the amount of a *life insurance company's income tax for an income year:

(i) the company's taxable income or *tax loss of one *class is worked out separately from its taxable income or tax loss of the other class; and

(ii) the company's tax losses of a particular class can be deducted only from its incomes in respect of that class; and

(b) for the purposes of this Act, that amount of income tax is treated as the company's income tax on its taxable income for that income year.

(2) In subsection (1), a class means the *complying superannuation class or the *ordinary class.

320-134 Income tax of a life insurance company

Working out the income tax

(1) Work out a *life insurance company's income tax for an income year under section 4-10 as follows:

(a) apply steps 1 and 2 of the method statement in subsection 4-10(3) to work out separately the amount that would be the company's basic income tax liability for its taxable income of each *class for that year;

(b) treat the sum of these amounts as the company's basic income tax liability for that year and apply step 4 of the method statement to subtract its *tax offsets from that sum.

(2) For the purposes of this Act:

(a) the income tax worked out in accordance with subsection (1) is taken to be the company's income tax on its taxable income for the income year; and

(b) except as provided by subsection (1) of this section and sections 320-135 to 320-149, the company's taxable income for that year is taken to be equal to the sum of the company's taxable incomes of the 2 *classes for that year.

Note: This means that there is only one assessment in respect of the company's taxable income for the income year and that the income tax constitutes only one debt to the Commonwealth.

Working out the income tax on certain assumptions

(3) Subsection (1) also has effect in relation to working out an amount that would be the company's income tax if certain assumptions were made. It has that effect in the same way as it has effect in relation to working out the company's income tax under section 4-10 (except in regard to those assumptions).

Note: This means, for example, subsection (1) also has effect in relation to working out the amount of a life insurance company's income tax on the basis of the assumptions mentioned in section 67-30 (about getting a refund of a tax offset).

320-135 Taxable income and tax loss of each of the 2 classes

(1) Subject to the other provisions in this Subdivision:

(a) this Act has effect for a *life insurance company in relation to working out a taxable income of a particular *class in the same way as it has effect in relation to working out a taxable income of any other company; and

(b) this Act has effect for a life insurance company in relation to working out or deducting a *tax loss of a particular class in the same way as it has effect in relation to working out or deducting a tax loss of any other company.

(2) Sections 320-137 to 320-143 have effect in addition to other provisions in this Act that relate to working out a taxable income or *tax loss, or deducting a tax loss (as appropriate).

(3) Nothing in this Subdivision prevents a *life insurance company from:

(a) having taxable incomes, or *tax losses, of both *classes for the same income year; or

(b) having a taxable income of one class and a tax loss of the other class for the same income year.

Note: In certain circumstances, a life insurance company can have a taxable income and a tax loss of the same class in an income year (see Subdivision 165-B as it has effect under this Subdivision).

Taxable income and tax loss of life insurance companies

320-137 Taxable income - complying superannuation class

(1) A *life insurance company's taxable income of the complying superannuation class is a taxable income worked out under this Act on the basis of only:

(a) assessable income of the company that is covered by subsection (2); and

(b) deductions of the company that are covered by subsection (4); and

(c) *tax losses of the company that are of the *complying superannuation class.

Note: For the usual way of working out a taxable income: see subsection 4-15(1). For other ways of working out a taxable income: see subsection 4-15(2).

Relevant assessable income

(2) This subsection covers the following assessable income of a *life insurance company:

(a) assessable income derived by the company from the investment of its *virtual PST assets in relation to the period during which those assets were virtual PST assets;

(b) so much of the amount that is included in the company's assessable income because of paragraph 320-15(1)(a) as is equal to the total *transfer value of assets transferred in the income year by the company to a *virtual PST under subsection 320-185(3);

(c) if an asset (other than money) is transferred by the company from a virtual PST under subsection 320-180(1) or 320-195(2) or (3) - amounts that are included in the company's assessable income because of section 320-200;

(d) amounts that are included in the company's assessable income because of paragraph 320-15(1)(db), (i) or (j);

(e) amounts that are included in the company's assessable income under subsection 115-280(4);

(f) subject to subsection (3), so much of the company's assessable income for the income year as is:

(i) the total amount credited during that year to the *RSAs provided by the company; less

(ii) the total amount debited during that year from the RSAs.

Amounts disregarded for RSAs

(3) In working out the amount mentioned in paragraph (2)(f), disregard the following amounts:

(a) contributions credited to the *RSAs that are not *taxable contributions;

(b) amounts debited from the RSAs that are benefits paid to, or in respect of, the holders of the RSAs;

(c) income tax debited from the RSAs;

(d) if an *annuity was paid from an RSA in respect of the whole of the income year, or the whole of the part of the income year in which the RSA existed, the total amount credited to the RSA during the income year;

(e) if an annuity was paid from an RSA in respect of a part, but not the whole, of the portion of the income year in which the RSA existed, so much of the total amount credited to the RSA during the income year as is equal to the amount worked out using the following formula:

Total amount credited to the RSA during the income year * (Number of days in the part of the income year in which the annuity was paid / Number of days in the income year in which the RSA existed)

Relevant deductions

(4) This subsection covers the following deductions of a *life insurance company:

(a) amounts that the company can deduct under section 320-55;

(b) amounts that the company can deduct (other than any *tax losses) in respect of the investment of the company's *virtual PST assets in relation to the period during which those assets were virtual PST assets;

(c) amounts that the company can deduct under section 320-87 because of subsection (1) or paragraph (3)(a) of that section;

(d) amounts that the company can deduct under subsection 115-280(1);

(e) so much of the amounts that the company can deduct under subsection 115-215(6) as are attributable to *capital gains that:

(i) the company is taken to have under subsection 115-215(3); and

(ii) are in respect of the investment of the company's virtual PST assets; and

(iii) are in relation to the period during which those assets were virtual PST assets.

320-139 Taxable income - ordinary class

A *life insurance company's taxable income of the ordinary class is a taxable income worked out under this Act on the basis of only:

(a) assessable income of the company that is not covered by subsection 320-137(2); and

(b) amounts (other than *tax losses) that the company can deduct and are not covered by subsection 320-137(4); and

(c) tax losses of the company that are of the *ordinary class.

Note: For the usual way of working out a taxable income: see subsection 4-15(1). For other ways of working out a taxable income: see subsection 4-15(2).

320-141 Tax loss - complying superannuation class

Working out a tax loss of the complying superannuation class

(1) A *life insurance company's *tax loss of the complying superannuation class is a tax loss worked out under this Act on the basis of only:

(a) assessable income of the company that is covered by subsection 320-137(2); and

(b) deductions of the company that are covered by subsection 320-137(4); and

(c) *net exempt income of the company that is attributable to *exempt income derived:

(i) from the company's *virtual PST assets; and

(ii) in relation to the period during which those assets were virtual PST assets.

Note: For the usual way of working out a tax loss: see section 36-10. For other ways of working out a tax loss: see section 36-25.

Deducting a tax loss of the complying superannuation class

(2) A *life insurance company's *tax loss of the complying superannuation class can be deducted under this Act only from:

(a) *net exempt income of the company that is attributable to *exempt income derived:

(i) from the company's *virtual PST assets; and

(ii) in relation to the period during which those assets were virtual PST assets; and

(b) assessable income of the company that is covered by subsection 320-137(2), reduced by deductions of the company that are covered by subsection 320-137(4).

Note: For the usual way of deducting a tax loss: see section 36-15. For other ways of deducting a tax loss: see section 36-25.

320-143 Tax loss - ordinary class

Working out a tax loss of the ordinary class

(1) A *life insurance company's *tax loss of the ordinary class is a tax loss worked out under this Act on the basis of only:

(a) assessable income of the company that is not covered by subsection 320-137(2); and

(b) amounts (other than tax losses) that the company can deduct and are not covered by subsection 320-137(4); and

(c) *net exempt income of the company that is not attributable to *exempt income derived:

(i) from the company's *virtual PST assets; and

(ii) in relation to the period during which those assets were virtual PST assets.

Note: For the usual way of working out a tax loss: see section 36-10. For other ways of working out a tax loss: see section 36-25.

Deducting a tax loss of the ordinary class

(2) A *life insurance company's *tax loss of the ordinary class can be deducted under this Act only from:

(a) *net exempt income of the company that is not attributable to *exempt income derived:

(i) from the company's *virtual PST assets; and

(ii) in relation to the period during which those assets were virtual PST assets; and

(b) assessable income of the company that is not covered by subsection 320-137(2), reduced by amounts (other than tax losses) that the company can deduct and are not covered by subsection 320-137(4).

Note: For the usual way of deducting a tax loss: see section 36-15. For other ways of deducting a tax loss: see section 36-25.

320-149 Provisions that apply only in relation to the ordinary class

(1) The provisions covered by subsection (2):

(a) have effect as provided by section 320-135 in relation to a *life insurance company's taxable income, or *tax loss, of the *ordinary class; but

(b) have no effect in relation to the company's taxable income, or tax loss, of the *complying superannuation class.

(2) This subsection covers these provisions:

(a) section 36-55;

(b) Division 165 (except Subdivision 165-CD).

Example 1: A life insurance company that has an amount of excess franking offsets will need to recalculate its tax loss of the ordinary class under section 36-55. But its tax loss of the complying superannuation class is unaffected by that section.

Example 2: A life insurance company that fails to meet the relevant tests of Division 165 will need to recalculate the ordinary class of its taxable income and tax loss under Subdivision 165-B. But the complying superannuation class of its taxable income and tax loss are unaffected by that Subdivision.