Issue
Is a life insurance company entitled to an exemption under section 320-40 of the Income Tax Assessment Act 1997 (ITAA 1997) if it increases the amount of a policy fee after 30 June 2000 by the Consumer Price Index under the terms and conditions of a life insurance policy entered into before 1 July 2000?
Decision
Yes. A life insurance company is entitled to an exemption under section 320-40 of the ITAA 1997 if it increases the amount of a policy fee after 30 June 2000 by the Consumer Price Index under the terms and conditions of a life insurance policy entered into before 1 July 2000.
Facts
The terms of a personal superannuation policy of a life company before 1 July 2000 entitled the life insurance company to increase the amount of the policy fee by the Consumer Price Index.
On 1 July 2001 the life insurance company increased the amount of the policy fee on a superannuation policy by 7.6 per cent. The Consumer Price Index for the period 1 July 2000 to 30 June 2001 was 7.6 per cent.
Reasons for Decision
Under subsection 320-40(1) of the ITAA 1997 a life insurance company is entitled to an exemption for one-third of specified management fees for contracts made with the company before 1 July 2000.
Subsection 320-40(4) of the ITAA 1997 provides that the fees and charges imposed by a life insurance company after 30 June 2000 on a policy entered into before 1 July 2000 are only exempt to the extent of any fees or charges that the company was entitled to make under the terms of the policy as applying immediately before 1 July 2000.
The terms of the policy prior to 1 July 2000 allowed a life insurance company to increase the amount of a policy fee by the Consumer Price Index.
Therefore the life insurance company meets the requirement of subsection 320-40(4) of the ITAA 1997 and is entitled to an exemption for specified management fees under section 320-40 of ITAA 1997.