ATO ID 2006/100: Consolidation: membership - restructure of membership interests supporting components of life insurance business
Date of decision: 30 March 2006
Year of income: Year ended 30 June 2006 Year ended 30 June 2007
Business line: Public Groups and International

Issue
The head company of a consolidated group is treated as a life insurance company. The consolidated group includes two subsidiaries that are unit trusts. The first unit trust is held under the virtual PST of the head company. The underlying assets of this unit trust are segregated to support virtual PST life insurance policy liabilities. The underlying assets of the second unit trust are not segregated and form part of the ordinary assets of the head company. That unit trust can be said to be held under the 'ordinary component' of the head company.

Decision

Facts
Head Co is the head company of a consolidated group. Under subsection 713-505 of the ITAA 1997, Head Co is treated as a life insurance company for the purposes of applying the income tax law. Investment policies are issued to trustees of superannuation funds and to ordinary (non-superannuation) policyholders. The assets supporting these policies are held through two subsidiary member unit trusts: It is proposed to issue an additional unit from each unit trust to other 'component' of Head Co for market value, namely:

Reasons for decision
Summary: Section 713-510 of the ITAA 1997 modifies the membership rules contained in Division 703 of the ITAA 1997 where a consolidated group has a member that is a life insurance company. Subsection 713-510(2) of the ITAA 1997 provides that: an entity cannot continue to be a *subsidiary member of a *consolidated group of which a *life insurance company is a *member if: (a) the *life insurance company owns, either directly or indirectly through one or more interposed entities, all the *membership interests in the entity and, had the entity not been a subsidiary member of the group, either: (i) some, but not all of the membership interests described in subsection (3) (the key interests ) would be *virtual PST assets of the life insurance company; or (ii) some, but not all, of the key interests would be segregated exempt assets of the life insurance company; or In accordance with subsection 713-510(3) of the ITAA 1997: the key interests are the *membership interests the *life insurance company owns directly in: (a) the entity; or (b) an interposed entity. As a consequence of issuing the additional unit by Trust V and by Trust O, some, but not all of the key interests in each unit trust would be virtual PST assets. Therefore, consistent with paragraph 713-510(2)(a) of the ITAA 1997, each trust cannot continue to be a subsidiary member of the consolidated group. The unit trusts will cease to be subsidiary members of the consolidated group.

Legislative references: Income Tax Assessment Act 1997 Division 320 Division 703 section 713-505 section 713-510 subsection 713-510(2) paragraph 713-510(2)(a) subsection 713-510(3)
Subject references: Consolidation Consolidation - membership Life insurance company Virtual pooled superannuation trusts Complying superannuation/FSHA asset pool Complying superannuation/FSHA asset Complying superannuation/FSHA liabilities Complying superannuation/FSHA life insurance policy