Australia Provides CGT Relief For Demutualised Friendly Societies

by Mary Swire, Tax-News.com, Hong Kong

24 October 2008

Australia's Assistant Treasurer, Chris Bowen, has announced that, with effect from July 1, 2008, the government will provide relief from capital gains tax for policyholders of friendly societies, including joint health and life insurers, which demutualise to for-profit entities.

Consistent with the existing relief available for policyholders of life and health insurers that demutualise, the government will provide a cost base for shares issued to policyholders that is based on: the market value of the health insurance business; and the embedded value of the life insurance business and any other business of the friendly society.

An equivalent cost base will also be provided to rights to acquire shares that are issued to policyholders under the demutualisation.

All policyholders of the friendly society who receive shares (or rights) will receive the same cost base calculation per share (or right). In addition, any capital gains or losses that arise to these policyholders from them receiving these shares or rights will be disregarded.

To ensure neutrality between policyholders who receive shares (or rights to acquire shares) and policyholders who receive a cash payment, the government will provide an equivalent cost base calculation for any rights that the policyholder exchanges for the cash payment. This will typically mean that a policyholder who receives such a payment will be taxed on the capital gain being the difference between this cost base and the cash amount received.

The government also intends to provide relief for certain other transactions that are related to a friendly society’s demutualisation.

Bowen said that a consultation will be undertaken on the design of these amendments, and a discussion paper is due to be released by the Treasury shortly.

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