Capital Gain Tax changes and its impact on insurers
Insurance organisations that have consolidated and settled liabilities prior to May 8 2007 will be disadvantaged by the changes to the Capital Gains Tax rules announced in the Federal Budget, said Deloitte Touche Tohmatsu tax partner John Giannakopoulos.
Tax partner Adele Watson explained that insurance companies have struggled with the Capital Gains Tax that may arise when a liability is discharged for an amount that is different to the amount used for tax cost setting purposes.
This is relevant to the outstanding claims reserves that are maintained by insurers on their balance sheet according to generally accepted accounting principles.
John said the legislative change seeks to address the mismatch between the estimation processes that are used for accounting purposes, with the actual liability arising for the general insurer.
If you have consolidated and settled the liability prior to the announcement, then you will be disadvantaged because the consolidated group could still be liable for Capital Gains Tax.
26-Jun-2007