7 June 2001

Dividend Imputation: Life Insurance Companies

The Assistant Treasurer, Senator Rod Kemp, today announced transitional arrangements relating to amendments to the Income Tax Assessment Act 1936 to close a loophole in the dividend imputation provisions that apply to life insurance companies.

The Government has introduced amendments to the taxation law today to prevent life insurance companies from inappropriately generating franking credits by deliberately overfranking the payment of dividends and applying the resulting franking deficits tax to offset a company tax liability. The amendments limit the extent to which life insurance companies can apply a payment of franking deficits tax or deficit deferral tax to offset their income tax assessment liability. The amendments apply in respect of assessments and amended assessments served on or after 4 May 1999.

The amendments also provide transitional arrangements that address certain circumstances where a scheme has been entered into but not completed by 4 May 1999. In these cases, life insurance companies will continue to be entitled to fully offset the payment of franking deficit tax or deficit deferral tax against their final tax liability. However, the inappropriate franking credits will be clawed back by restoring the franking accounts of the companies involved in the scheme to the position those accounts would have been in had the scheme not been entered into.

The transitional arrangements will ensure that any companies, which received a favourable private binding ruling in relation to the taxation consequences of overfranking dividends, will not be retrospectively affected. The transitional arrangements are considered appropriate in order not to penalise any companies in this situation for implementing what was confirmed by the ATO as consistent with the law at the time. The arrangements would restore the company to the position they would have been in if they had not entered into the scheme.

Canberra
7 June 2001

Media contacts: Paul Edwards Assistant Treasurers Office (02) 6277 7360