ATO ID 2006/222: Capital Gains Tax: CGT event H2 - premium rebate
Date of decision: 27 July 2006
Year of income: Year ended 30 June 2000 Year ended 30 June 2001
Business line: Public Groups and International

Issue
Is a resolution of an insurer to allow a premium rebate under a policy of insurance a CGT event H2 in relation to the policy holder's asset, which is the bundle of rights under the insurance policy?

Decision
Yes. A resolution by an insurer to allow a premium rebate under a policy of insurance is a CGT event H2 in relation to the policy holder's asset.

Facts
A policy holder held a contract of insurance (the policy) with an insurer. The policy contained no provision for insurance premium rebates to be paid by the Insurer. The insurer resolved that an insurance premium rebate be paid to the policy holder, and the policy be endorsed to provide for such a premium rebate. Subsequently, the insurer paid a portion of insurance premiums paid under the policy as a rebate to the policy holder.

Reasons for decision
Summary: Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset is any kind of property or a legal or equitable right that is not property. The bundle of rights held by the policy holder under the insurance policy is a CGT asset. Pursuant to section 104-155 of the ITAA 1997, CGT event H2 happens if an act, transaction or event occurs in relation to a CGT asset owned by an entity, and the act, transaction or event does not result in an adjustment being made to the asset's cost base or reduced cost base. The insurer's resolution to allow a premium rebate to be paid under the insurance policy affected the rights of the policy holder and ultimately varied the policy. The resolution was an act or event that happened in relation to the policy holder's bundle of rights under the policy. The insurer's resolution did not result in any adjustment to the cost base of the policy holder's bundle of rights under the policies. Further, none of the exceptions to CGT event H2 listed in subsection 104-155(5) of the ITAA 1997 applied. Therefore, the insurer making a resolution to allow a premium rebate to be paid was a CGT event H2 in respect of the policy holder's bundle of rights under the policies.

Legislative references: Income Tax Assessment Act 1997 section 104-155 subsection 104-155(5)
Subject references: Capital gains tax CGT events H1-H2 - special capital receipts Insurance Refunds