Issue
Is a life insurance company entitled to an exemption under section 320-40 of the Income Tax Assessment Act 1997 (ITAA 1997) if, after 30 June 2000, it increases the annual management fee that it imposes under its ordinary investment linked policy (that is not a participating or discretionary policy), to an amount that does not exceed the maximum annual management fee that it was entitled to impose under the terms and conditions of the 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, after 30 June 2000, it increases the annual management fee that it imposes under its ordinary investment linked policy (that is not a participating or discretionary policy), to an amount that does not exceed the maximum annual management fee that it was entitled to impose under the terms and conditions of the life insurance policy entered into before 1 July 2000.
Facts
The terms of an ordinary investment linked life insurance policy entered into before 1 July 2000 entitled the company to impose an annual management fee of 1.5 per cent of assets under management.
The life insurance company imposed an annual management fee of 1.25 per cent of assets under management under the terms of its ordinary investment linked policy before 1 July 2000.
On 30 June 2001 the life insurance company imposed an annual management fee of 1.3 per cent of assets under management.
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 requirement of subsection 320-40(4) of the ITAA 1997 is satisfied as the annual management fee that can be imposed under the terms of the investment linked life insurance policy after 30 June 2000 does not exceed the management fee that the life insurance company was entitled to impose under the terms of the policy before 1 July 2000.
Further, the life insurance policy is not excluded from the exemption under section 320-40 of the ITAA 1997 by subsection 320-40(3) of the ITAA 1997 as the policy is not a participating or discretionary policy, nor is it payable only on the death or disability of the policyholder.
Therefore the life insurance company is entitled to an exemption for specified management fees in respect of an ordinary investment linked life insurance policy.