(2) The following diagram shows the main events, where this demutualisation method is used involving 2 trustees and an election covered by subparagraph (1)(e)(ii).
A diagram of Demutualisation method 4, in connection with the implementation of the demutualisation involving 2 trustees and an election covered by section 121AJ(1)(e)(ii)
121AJ Demutualisation method 5
(1) Under demutualisation method 5, in connection with the implementation of the demutualisation:
(a) all membership rights in the mutual insurance company are extinguished; and
(b) shares in the mutual insurance company are issued to another company (the holding company); and
(c) shares (the ordinary shares) of only one class in:
(i) the holding company; or
(ii) another company (the ultimate holding company) of which the holding company is a wholly‑owned subsidiary, either directly or through one or more other wholly‑owned subsidiaries (each of which is an interposed holding company);
are either:
(iii) issued, at the election of each person in the policyholder/ member group, to the person or to a trustee to sell on behalf of the person; or
(iv) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and
(d) the trustee sells the ordinary shares and distributes the proceeds of sale to the person, or distributes the ordinary shares to the person; and
(e) the ordinary shares are listed within the listing period.
Note: Other things may also happen in connection with the implementation of the demutualisation.
(2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(iv).
A diagram of Demutualisation method 5, where this demutualisation method is used involving an election covered by section 121AJ(1)(c)(iv)
121AK Demutualisation method 6
(1) Under demutualisation method 6, in connection with the implementation of the demutualisation of a life insurance company:
(a) all membership rights in the company are extinguished; and
(b) the whole of the life insurance business of the company is, under a scheme confirmed by the Federal Court of Australia, transferred to another company formed for the purpose; and
(c) shares (the ordinary shares) of only one class in the other company are:
(i) issued, at the election of each person in the policyholder/member group, to the person or to a trustee to sell on behalf of the person; or
(ii) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and
(d) the trustee sells the ordinary shares and distributes the proceeds of sale to the person or distributes the ordinary shares to the person; and
(e) the ordinary shares are listed within the listing period.
Note: Other things may also happen in connection with the implementation of the demutualisation.
(2) The following diagram shows the main events, where this demutualisation method is used.
A diagram of Demutualisation method 6, showing the main events of the demutualisation of a life insurance company
121AL Demutualisation method 7
(1) Under demutualisation method 7, in connection with the implementation of the demutualisation of both a mutual insurance company and a mutual affiliate company:
(a) all membership rights in both companies are extinguished; and
(b) shares in the mutual insurance company and the mutual affiliate company are issued to another company (the holding company); and
(c) shares (the ordinary shares) of only one class in:
(i) the holding company; or
(ii) another company (the ultimate holding company) of which the holding company is a wholly‑owned subsidiary, either directly or through one or more other wholly‑owned subsidiaries (each of which is an interposed holding company);
are either:
(iii) issued, at the election of each person in the policyholder/member group to the person or to a trustee to sell on behalf of the person; or
(iv) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and
(d) the trustee sells the ordinary shares and distributes the proceeds of the sale to the person, or distributes the ordinary shares to the person; and
(e) the ordinary shares are listed within the listing period.
Note: Other things may also happen in connection with the implementation of the demutualisation.
(2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(iv).
A diagram of Demutualisation method 7, in connection with the implementation of the demutualisation of both a mutual insurance company and a mutual affiliate company
121AM Embedded value of a mutual life insurance company
(1) The embedded value of a mutual life insurance company that demutualises using a demutualisation method is, in accordance with this section, the sum of its existing business value and its adjusted net worth on the applicable accounting day (see subsection (3)).
Eligible actuary and Australian actuarial practice
(2) The sum is to be worked out by an eligible actuary (see subsection 121AO(3)) according to Australian actuarial practice.
Applicable accounting day
(3) The applicable accounting day is:
(a) if an accounting period of the company ends on the demutualisation resolution day—that day; or
(b) in any other case—the last day of the most recent accounting period of the company ending before the demutualisation resolution day.
Adjustment for changes after applicable accounting day
(4) In a case covered by paragraph (3)(b), if any significant change in the amount of the existing business value or adjusted net worth occurs between the applicable accounting day and the demutualisation resolution day, the amount is to be adjusted to take account of the change.
Continued business assumption
(5) In working out the existing business value or the adjusted net worth, it is to be assumed:
(a) that after the applicable accounting day the company will continue to conduct its life insurance business and any other activity in the same way as it did before that day, and that it will not conduct any different business or other activity; and
(b) that the demutualisation will not occur.
Discount rate assumption
(6) In working out the existing business value or adjusted net worth, the annual discount rate to be used in respect of each future accounting period is worked out using the formula:
Start formula 10 year Treasury bond rate plus 4.5% plus Capital reserve adequacy shortfall percentage end formula
where:
10 year Treasury bond rate means the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 10 year term.
Capital reserve adequacy shortfall percentage means:
(a) if, for any future accounting period, the capital reserves of the company are projected to fall below the capital reserve adequacy level (see subsection 121AO(2)) by 1% or more at both the beginning and end of the accounting period—the percentage worked out by averaging the percentages worked out under each of the following subparagraphs:
(i) 0.2% for each 1% by which the capital reserves are projected to fall below the level at the beginning of the period;
(ii) 0.2% for each 1% by which the capital reserves are projected to fall below the level at the end of the period; or
(b) in any other case—nil.
Annual inflation rate assumption
(7) In working out the existing business value, the annual inflation rate to be applied is worked out using the formula:
Start formula 10 year Treasury bond rate open bracket see subsection open bracket 6 close bracket close bracket minus 4% end formula
Expenditure assumption
(8) In working out the existing business value, it is to be assumed that expenditure that the company will incur, in conducting its life insurance business, on recurring items after the demutualisation resolution day will be of the same kinds and amounts (increased to take account of any inflation, using the annual inflation rate in subsection (7)) as the company incurred in the accounting period, or part of an accounting period, ending on the demutualisation resolution day.
Investment return assumption
(9) In working out the existing business value or the adjusted net worth, it is to be assumed that the annual rate of return on each investment of the company is:
(a) if the investment is a security with a term less than 2 years or is cash—the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 26 week term; or
(b) if the investment is any other kind of security—the Treasury bond rate for the applicable accounting day in respect of bonds with a 10 year term; or
(c) in any other case—the rate mentioned in paragraph (b), plus 3%.
Future distributable profits assumption
(10) In working out the existing business value or the adjusted net worth, the future distributable profits are to be determined on the assumption that the company:
(a) will not distribute its profits so as to cause its capital reserves to fall below the capital reserve adequacy level (see subsection 121AO(2)) applicable to the company; and
(b) will distribute all of its profits except to the extent necessary for its capital reserves not to fall below the capital reserve adequacy level.
121AN Net tangible asset value of a general insurance company or mutual affiliate company
(1) The net tangible asset value of a general insurance company, or a mutual affiliate company, that demutualises using a demutualisation method is, in accordance with this section:
(a) the amount of its assets on the applicable accounting day (see subsection (4));
reduced by:
(b) the amount of its liabilities (including future liabilities) arising from its business conducted before that day.
Australian accounting practice
(2) The amount of the company’s assets and liabilities (other than future liabilities) is to be worked out according to Australian accounting practice.
Eligible actuary and Australian actuarial practice
(3) The amount of the company’s future liabilities is to be worked out by an eligible actuary (see subsection 121AO(3)) according to Australian actuarial practice.
Applicable accounting day
(4) The applicable accounting day is:
(a) if an accounting period of the company ends on the demutualisation resolution day—that day; or
(b) in any other case—the last day of the most recent accounting period of the company ending before the demutualisation resolution day.
Adjustment for changes after applicable accounting day
(5) In a case covered by paragraph (4)(b), if any significant change in the amount of the company’s assets or liabilities occurs between the applicable accounting day and the demutualisation resolution day, that amount is to be adjusted to take account of the change.
Continued business assumption
(6) In working out the net tangible asset value, it is to be assumed:
(a) that after the applicable accounting day the company will continue to conduct its business and any other activity in the same way as it did before that day, and that it will not conduct any different business or other activity; and
(b) that the demutualisation will not occur.
121AO Treasury bond rate, capital reserve adequacy level, eligible actuary and security
Treasury bond rate
(1) The Treasury bond rate for the applicable accounting day in respect of bonds with a particular term is:
(a) if any Treasury bonds with that term were issued on the applicable accounting day—the annual yield on those bonds; or
(b) in any other case—the annual yield on Treasury bonds with that term, as published by the Reserve Bank of Australia and applicable to the accounting day.
Capital reserve adequacy level
(2) The capital reserve adequacy level for a life insurance company that demutualises is:
(a) if, after 1 July 1995 and before the applicable accounting day mentioned in subsection 121AM(3) or 121AN(4), a prudential standard made under section 230B of the Life Insurance Act 1995 in relation to capital adequacy applied to the company—the level of capital reserves required by that standard; or
(b) in any other case—the level of capital reserves required to provide adequate capital for the conduct of the life insurance business and other activities of the company.
Eligible actuary
(3) An eligible actuary is a Fellow or Accredited Member of the Institute of Actuaries of Australia who is not an employee of:
(a) the mutual insurance company or, where demutualisation method 7 applies, the mutual insurance company or the mutual affiliate company; or
(b) a subsidiary of that company or, where demutualisation method 7 applies, of either company.
Security
(4) A security is:
(a) a bond, debenture, certificate of entitlement, bill of exchange or promissory note; or
(b) a deposit with a bank or other financial institution; or
(c) a secured or unsecured loan.
121AP Subsidiary and wholly‑owned subsidiary
Subsidiary
(1) A company (the test company) is a subsidiary of another company (the holding company) if at least half of the shares in the test company are beneficially owned by:
(a) the holding company; or
(b) a company that is, or 2 or more companies each of which is, a subsidiary of the holding company; or
(c) the holding company and a company that is, or 2 or more companies each of which is, a subsidiary of the holding company.
(2) If a company is a subsidiary of another company (including because of this subsection), every company that is a subsidiary of the first‑mentioned company is a subsidiary of the other company.
Wholly‑owned subsidiary
(3) A company is a wholly‑owned subsidiary of another company if it would, under subsection (1) or (2), be a subsidiary of the other company assuming that the reference in subsection (1) to at least half of the shares were instead a reference to all of the shares.
121AQ Other definitions
In this Division:
annuity has the same meaning as in section 10 of the Superannuation Industry (Supervision) Act 1993.
first trading day price, in relation to a listed share, means the price on the stock market operated by ASX Limited, as published by that company, at which the share was last traded on the trading day on which it was listed.
general insurance business means insurance business (within the meaning of the Insurance Act 1973) other than life insurance business.
life insurance business has the same meaning as in the Life Insurance Act 1995.
listed means listed for quotation in the official list of ASX Limited.
superannuation interest has the same meaning as in the Income Tax Assessment Act 1997.
121AR List of definitions
The following table lists the expressions defined in this Division and shows the provisions in which they are defined:
Definition
Provision
annuity
121AQ
applicable accounting day
121AM(3) and 121AN(4)
capital reserve adequacy level
121AO(2)
eligible actuary
121AO(3)
embedded value
121AM(1)
demutualise
121AD(1) and (2)
demutualisation method
121AE(3)
demutualisation method 1 to demutualisation method 7
121AF to 121AL
demutualisation resolution day
121AD(3)
first trading day price
121AQ
general insurance business
121AQ
general insurance company
121AB(4)
insurance company
121AB(2)
life insurance business
121AQ
life insurance company
121AB(3)
listed
121AQ
listing period
121AE(6)
mutual affiliate company
121AC
mutual insurance company
121AB(1)
net tangible asset value
121AN(1)
policyholder/member group
121AE(4) and (5)
security
121AO(4)
subsidiary
121AP(1) and (2)
superannuation interest
121AQ
Treasury bond rate
121AO(1)
wholly‑owned subsidiary
121AP(3)
Subdivision C—Tax consequences of demutualisation
121AS CGT consequences of demutualisation
The table below sets out modifications of the application of Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997 in respect of events that are described in, or relate to events that are described in, particular demutualisation methods.