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Taxation Laws Amendment Bill (No. 2) 2001
Schedule 3 Life assurance companies

   

Income Tax Assessment Act 1936

1  At the end of section 160AQK

Add:

             (3)  This section does not apply to a life assurance company in relation to a liability to pay franking deficit tax or deficit deferral tax for a franking year that ends on or after 4 May 1999.

2  At the end of section 160AQKA

Add:

             (2)  This section does not apply to a life assurance company in relation to a liability to pay franking deficit tax or deficit deferral tax for a franking year that ends on or after 4 May 1999.

3  After section 160AQKA

Insert:

160AQKAA   Entitlement for life assurance companies to offset on or after 4 May 1999

Determination by Commissioner—original assessment

             (1)  Subject to this Subdivision, where:

                     (a)  a life assurance company has become liable to pay one or more of the following in relation to a franking year that ends on or after 4 May 1999:

                              (i)  class A franking deficit tax for the franking year;

                             (ii)  class C franking deficit tax for the franking year;

                            (iii)  class A deficit deferral tax in relation to the refund of one or more instalments paid during the franking year;

                            (iv)  class C deficit deferral tax in relation to the refund of one or more instalments paid during the franking year; and

                     (b)  after the end of the franking year, the Commissioner serves on the company a notice of an original company tax assessment for an eligible year of income in which the company was sufficiently resident;

the Commissioner must determine that the company is entitled to an offset in relation to that company tax equal to the amount specified in the determination.

Determination to specify lesser of 2 amounts

             (2)  The amount specified in the determination must be the lesser of the following amounts:

                     (a)  the sum of the class A franking deficit tax, the class A deficit deferral tax, the class C franking deficit tax and the class C deficit deferral tax, reduced by any part of it that has been previously applied under this Subdivision;

                     (b)  the amount, worked out under section 160AQKAB, of the company’s liability to pay company tax for the eligible year of income that would normally give rise to franking credits, reduced by any foreign tax credits allowable in respect of tax paid or payable by the company in respect of income derived in the eligible year of income.

Determination by Commissioner—amended assessment

             (3)  Subject to this Subdivision, where:

                     (a)  a life assurance company has become liable to pay one or more of the following in relation to a franking year that ends on or after 4 May 1999:

                              (i)  class A franking deficit tax for the franking year;

                             (ii)  class C franking deficit tax for the franking year;

                            (iii)  class A deficit deferral tax in relation to the refund of one or more instalments paid during the franking year;

                            (iv)  class C deficit deferral tax in relation to the refund of one or more instalments paid during the franking year; and

                     (b)  after the end of the franking year, the Commissioner serves on the company a notice of an amended company tax assessment for an eligible year of income in which the company was sufficiently resident;

then:

                     (c)  any determination already made by the Commissioner under this section as a result of the service on the company of an original or amended company tax assessment for the eligible year of income is revoked; and

                     (d)  except for the purposes of section 160AQKAD, the company is not entitled, and is taken never to have been entitled, to an offset under any such determination; and

                     (e)  the Commissioner must make a new determination that the company is entitled to an offset in relation to its company tax for the eligible year of income equal to the amount specified in the new determination.

Determination to specify lesser of 2 amounts

             (4)  The amount specified in the new determination must be the lesser of the following amounts:

                     (a)  the sum of the class A franking deficit tax, the class A deficit deferral tax, the class C franking deficit tax and the class C deficit deferral tax, reduced by any part of it that has been previously applied under this Subdivision in relation to an eligible year of income other than the eligible year of income for which the amended assessment is made;

                     (b)  the amount, worked out under section 160AQKAB, of the company’s liability to pay company tax for the eligible year of income that would normally give rise to franking credits, reduced by any foreign tax credits allowable in respect of tax paid or payable by the company in respect of income derived in the eligible year of income.

Company may claim offset

             (5)  The company may, for the purposes of making a claim for an offset under this section in relation to a year of income, determine:

                     (a)  whether an offset is allowable to the company; and

                     (b)  if the company determines that an offset is so allowable—the amount of the offset.

             (6)  A claim under subsection (5) must be made after the end of a franking year that ends on or after 4 May 1999 in the return furnished by the company in respect of income of that year of income or after the furnishing of that return.

160AQKAB   Amount of a life assurance company’s liability to pay company tax that would normally give rise to franking credits

Years of income ending before 1 July 2000

             (1)  If an eligible year of income of a life assurance company ends before 1 July 2000, the amount of the company’s liability to pay company tax for that year that would normally give rise to franking credits is the amount of the company’s liability to pay company tax for that year, reduced by the sum of the following:

                     (a)  the amount of the company tax that is attributable to the RSA component of the taxable income of the company for the year of income;

                     (b)  80% of the amount of the company tax that is not attributable to the general fund component of the taxable income of the company for the year of income.

1999-2000 year of income ending on or after 1 July 2000

             (2)  If the 1999-2000 year of income of a life assurance company ends on or after 1 July 2000, the amount of the company’s liability to pay company tax for that year that would normally give rise to franking credits is the amount of the company’s liability to pay company tax for that year, reduced by the sum of the following:

                     (a)  the amount of the company tax that is attributable to income earned before 1 July 2000 and also attributable to the RSA component of the taxable income of the company for the year of income;

                     (b)  80% of the amount of the company tax that is attributable to income earned before 1 July 2000 and is not attributable to the general fund component of the taxable income of the company for the year of income;

                     (c)  the amount of the company tax that is attributable to income earned on or after 1 July 2000 and is not attributable to shareholders’ funds income.

2000-01 year of income begins before 1 July 2000

             (3)  If the 2000-01 year of income of a life assurance company begins before 1 July 2000, the amount of the company’s liability to pay company tax for that year that would normally give rise to franking credits is the amount of the company’s liability to pay company tax for that year, reduced by the sum of the following:

                     (a)  the amount of the company tax that is attributable to income earned before 1 July 2000 and also attributable to the RSA component of the taxable income of the company for the year of income;

                     (b)  80% of the amount of the company tax that is attributable to income earned before 1 July 2000 and is not attributable to the general fund component of the taxable income of the company for the year of income;

                     (c)  the amount of the company tax that is attributable to income earned on or after 1 July 2000 and is not attributable to shareholders’ funds income.

Other years of income

             (4)  If an eligible year of income of a life assurance company ends on or after 1 July 2000 and is not dealt with in subsection (2) or (3), the amount of the company’s liability to pay company tax for that year that would normally give rise to franking credits is the amount of the company’s liability to pay company tax for that year that is attributable to shareholders’ funds income.

Working out the company tax for the year

             (5)  For the purposes of this section, the amount of the company’s liability to pay company tax for a year of income is:

                     (a)  if an original company tax assessment for the year of income has been served on the company and has not (or not yet) been amended—the amount of the company’s liability to pay company tax for that year under that assessment; and

                     (b)  if an amended company tax assessment for the year of income is served on the company—the amount of the company’s liability to pay company tax for that year under that assessment.

Definition

             (6)  For the purposes of this section:

RSA component has the same meaning as in Division 8 of Part III (as in force immediately before 1 July 2000).

160AQKAC   Consequences of offset entitlement—reduction of company tax liability

                   If the Commissioner determines that a life assurance company is entitled to an offset under section 160AQKAA in relation to company tax for an eligible year of income, the company’s liability to pay company tax for the eligible year of income is reduced by the amount of the offset.

160AQKAD   Consequences of offset entitlement—franking credits and debits

Object of section

             (1)  The object of this section is to ensure that, if the Commissioner determines that a life assurance company is entitled to an offset under section 160AQKAA, franking credits and debits that arise in relation to the company’s company tax for the eligible year of income do not exceed those that would have arisen if the company had not received the offset under section 160AQKAC and instead satisfied its unreduced liability to pay company tax.

Overview of section

             (2)  That object is achieved by reversing any previous franking credits and debits and recalculating them each time a determination is made by the Commissioner as a result of an original or amended company tax assessment. If the company pays a PAYG instalment or company tax, or receives a refund of company tax, after the original or amended company tax assessment that resulted in the determination is served on the company, a separate franking credit or debit will be generated (which may be subject to reversal as a result of a later assessment and determination).

No franking credits or franking debits except under this section

             (3)  No franking credit or franking debit arises in relation to the company’s company tax for the eligible year of income on or after the day on which the original company tax assessment for that year is served on the company, except under this section.

Reversing out franking credits and debits that arose before the original company tax assessment

             (4)  If the determination is made under subsection 160AQKAA(1) (a determination made as a result of the original company tax assessment for the eligible year of income):

                     (a)  a class C franking debit arises on the day on which the original company tax assessment is served on the company equal to the sum of all class C franking credits that have arisen in relation to the company’s company tax for the eligible year of income before that day; and

                     (b)  a class C franking credit arises on the day on which the original company tax assessment is served on the company equal to the sum of all class C franking debits that have arisen in relation to the company’s company tax for the eligible year of income before that day.

Franking credit on original company tax assessment

             (5)  On the day on which the original company tax assessment is served on the company, a class C franking credit equal to the adjusted amount of the amount worked out using the following formula arises:

where:

amount of the company’s liability to pay company tax for the eligible year of income that would normally give rise to franking credits is the amount worked out for the company for that year under section 160AQKAB.

reduced liability to pay company tax means the amount, after the reduction under section 160AQKAC is made, of the company’s liability to pay company tax for the eligible year of income (worked out in accordance with the original company tax assessment).

total payments of PAYG instalments and company tax means the sum of all PAYG instalments and company tax for the eligible year of income paid by the company on or before the day on which the original company tax assessment is served.

Note:          If payments or refunds of company tax are made after the original company tax assessment is served on the company, franking credits and debits arise for those under subsections (8) and (10).

Reversing out franking credits and debits that arose before an amended company tax assessment

             (6)  If the determination is made under subsection 160AQKAA(3) (a determination made as a result of an amended company tax assessment for the eligible year of income):

                     (a)  a class C franking debit arises on the day on which the amended company tax assessment is served on the company equal to the sum of all class C franking credits that have arisen before that day in relation to the company’s company tax for the eligible year of income, other than class C franking credits in relation to which a class C franking debit has already arisen because of a previous application of this section; and

                     (b)  a class C franking credit arises on the day on which the amended company tax assessment is served on the company equal to the sum of all class C franking debits that have arisen before that day in relation to the company’s company tax for the eligible year of income, other than class C franking debits in relation to which a class C franking credit has already arisen because of a previous application of this section.

Note:          For example, if the amended company tax assessment is the first or only amended assessment, subsection (6) will reverse any franking credit arising under subsection (5) in respect of the original company tax assessment, and franking credits and debits arising under subsections (8) and (10) for payments and refunds of company tax made between the serving of the original company tax assessment and the amended company tax assessment.

Franking credit on amended company tax assessment

             (7)  On the day on which the amended company tax assessment is served on the company, a class C franking credit equal to the adjusted amount of the amount worked out using the following formula arises:

where:

amount of the company’s liability to pay company tax for the eligible year of income that would normally give rise to franking credits is the amount worked out for the company for that year under section 160AQKAB.

reduced liability to pay company tax means the amount, after the reduction under section 160AQKAC is made, of the company’s liability to pay company tax for the eligible year of income (worked out in accordance with the amended company tax assessment).

total payments of PAYG instalments and company tax less refunds means the sum of all PAYG instalments and company tax for the eligible year of income paid by the company on or before the day on which the amended company tax assessment is served less the sum of all refunds of company tax for the eligible year of income received by the company on or before that day.

Franking credit on a payment made after original or amended company tax assessment

             (8)  A class C franking credit arises if the company pays a PAYG instalment or company tax for the eligible year of income:

                     (a)  in a case where the determination is made under subsection 160AQKAA(1) (a determination made as a result of the original company tax assessment for the eligible year of income)—after the day on which the original company tax assessment is served on the company and before the day on which the first or only amended company tax assessment (if any) is served on the company; and

                     (b)  in a case where the determination is made under subsection 160AQKAA(3) (a determination made as a result of an amended company tax assessment for the eligible year of income)—after the day on which the amended company tax assessment is served on the company and before the day on which the next amended company tax assessment (if any) is served on the company.

             (9)  The class C franking credit arises on the day on which the payment is made and is equal to the adjusted amount of the amount worked out using the formula:

where:

amount of the company’s liability to pay company tax for the eligible year of income that would normally give rise to franking credits is the amount worked out for the company for that year under section 160AQKAB.

reduced liability to pay company tax means the amount, after the reduction under section 160AQKAC is made, of the company’s liability to pay company tax for the eligible year of income (worked out in accordance with the assessment that resulted in the most recent determination).

Franking debit on a refund received after original or amended company tax assessment

           (10)  A class C franking debit arises if the company receives a refund of company tax for the eligible year of income:

                     (a)  in a case where the determination is made under subsection 160AQKAA(1) (a determination made as a result of the original company tax assessment for the eligible year of income)—after the day on which the original company tax assessment is served on the company and before the day on which the first or only amended company tax assessment (if any) is served on the company; and

                     (b)  in a case where the determination is made under subsection 160AQKAA(3) (a determination made as a result of an amended company tax assessment for the eligible year of income)—after the day on which the amended company tax assessment is served on the company and before the day on which the next amended company tax assessment (if any) is served on the company.

           (11)  The class C franking debit arises on the day on which the refund is received and is equal to the adjusted amount of the amount worked out using the following formula:

where:

amount of the company’s liability to pay company tax for the eligible year of income that would normally give rise to franking credits is the amount worked out for the company for that year under section 160AQKAB.

reduced liability to pay company tax means the amount, after the reduction under section 160AQKAC is made, of the company’s liability to pay company tax for the eligible year of income (worked out in accordance with the assessment that resulted in the most recent determination).

160AQKAE   Transitional—adjustments where franking year ends before 4 May 1999

When section applies

             (1)  This section applies if:

                     (a)  a life assurance company (the subsidiary company ) has become liable to pay one or more of the following in relation to a franking year that ends before 4 May 1999:

                              (i)  class A franking deficit tax for the franking year;

                             (ii)  class C franking deficit tax for the franking year;

                            (iii)  class A deficit deferral tax in relation to the refund of one or more instalments paid during the franking year;

                            (iv)  class C deficit deferral tax in relation to the refund of one or more instalments paid during the franking year; and

                     (b)  some or all (the available deficit/deferral tax liability ) of that franking deficit tax or deficit deferral tax liability has not given rise to an entitlement to an offset under section 160AQK before 4 May 1999; and

                     (c)  at all times during the period beginning at the start of the franking year and ending on the day on which an original assessment is made in relation to the subsidiary company in relation to the last year of income in which a liability mentioned in paragraph (a) arises:

                              (i)  the subsidiary company was a wholly-owned subsidiary (as defined in section 121AP) of another company (the holding company ); and

                             (ii)  both companies were residents of Australia.

Consequences for the subsidiary company under this section

             (2)  The subsidiary company is not entitled to an offset under section 160AQK in relation to the available deficit/deferral tax liability.

             (3)  If:

                     (a)  the subsidiary company satisfies in whole or in part (which whole or part is the deficit/deferral tax amount ) the available deficit/deferral tax liability; and

                     (b)  on or after 4 May 1999:

                              (i)  the Commissioner serves on the subsidiary company a notice of an original company tax assessment for an eligible year of income in which the company was sufficiently resident; or

                             (ii)  the Commissioner serves on the subsidiary company a notice of an amended company tax assessment for an eligible year of income in which the company was sufficiently resident, being an amendment that increases the company tax of the company;

the Commissioner must determine that the subsidiary company is entitled to an offset in relation to the company tax, or increased company tax, equal to the amount specified in the determination.

             (4)  The amount specified in the determination must be the lesser of the following amounts:

                     (a)  the deficit/deferral tax amount, reduced by any part of it that has been previously applied under this section;

                     (b)  the amount of the company tax or increased company tax, reduced by any foreign tax credits allowable in respect of tax paid or payable by the company in respect of income derived in the eligible year of income.

Company may claim offset

             (5)  The subsidiary company may, for the purposes of making a claim for an offset under this section in relation to a year of income, determine:

                     (a)  whether an offset is allowable to the subsidiary company; and

                     (b)  if the subsidiary company determines that an offset is so allowable—the amount of the offset.

             (6)  A claim under subsection (5) must be made on or after 4 May 1999 in the return furnished by the company in respect of income of that year of income or after the furnishing of that return.

Further consequences if a determination is made

             (7)  If the subsidiary company is entitled to an offset under a determination made under this section:

                     (a)  for the purposes of Division 2 of this Part, the subsidiary company is taken to have made a payment of company tax for the eligible year of income equal to the offset specified in the determination, and not to have satisfied the liability mentioned in paragraph (1)(a); and

                     (b)  any franking credit or debit that arises because of that payment is taken to arise on 7 June 2001 or the day on which the subsidiary company first becomes entitled to offset an amount mentioned in paragraph (1)(a) against the subsidiary company’s company tax, whichever is later.

Consequences for the holding company under this section

             (8)  If this section applies, a class C franking debit arises for the holding company on 7 June 2001 or the day on which the subsidiary company first becomes entitled to offset an amount mentioned in paragraph (1)(a) against the subsidiary company’s company tax, whichever is later. The amount of the franking debit is worked out using the formula:

             (9)  The section has effect as if it had come into operation on 4 May 1999. For that purpose:

                     (a)  any claim for an offset made under section 160AQKA after 4 May 1999 but before the commencement of this section is taken to be a claim made under this section; and

                     (b)  on the day on which any such claim under section 160AQKA was made, the Commissioner is taken to have made a determination under this section that the company making the claim is entitled to an offset of the amount claimed.