The Assistant Treasurer, Senator Rod Kemp, today announced that the Government will introduce amendments to the taxation law to ensure that the deduction allowed to general insurers for outstanding claims continues to be calculated on a discounted basis consistent with the long standing principles agreed to with the general insurance industry outlined in Taxation Ruling IT 2663.
That is, consistent with actuarial and accounting principles that apply to general insurers, the deduction allowed for outstanding claims will be the amount that needs to be set aside by a general insurer in a year that, when invested, will provide sufficient funds to pay its outstanding claims in the future.
The amendment is required following the High Court of Australia’s refusal to grant the Commissioner of Taxation special leave to appeal against the Full Federal Court’s decision in Commissioner of Taxation v Mercantile Mutual Insurance (Workers Compensation) Ltd and Commissioner of Taxation v Mercantile Mutual Insurance (Australia) Ltd. The Full Federal Court’s decision would allow general insurers a deduction for the face value, rather than the present value, of the outstanding claims – even though the outstanding claims may not be actually paid for many years.
The amendments will apply from the 1991-1992 income year - the year that Taxation Ruling IT 2663 commenced. The amendments affirm the approach that industry and the ATO have been applying on an agreed basis since the 1991-92 income year.
MELBOURNE
18 February 2000
Media contacts: Richard Allsop Assistant Treasurer’s Office (03) 9650 7274
Tony Regan Australian Taxation Office (02) 6263 4404