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27 Oct 08 CGT relief for friendly society demutualisation

The Assistant Treasurer announced in a press release (No 86, 24 October 2008) that CGT relief will be provided for policyholders of friendly societies (including joint health and life insurers) that demutualise to for-profit entities. The relief will be effective from 1 July 2008 with the following key features:

  • a cost base will be provided for shares issued to policyholders that is based on: (i) the market value of the health insurance business; and (ii) 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; and
  • to ensure neutrality between policyholders who receive shares (or rights to acquire shares) and policyholders who receive a cash payment, an equivalent cost base calculation will be provided 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.

Treasury will release a discussion paper on these proposed amendments and consultation will be undertaken on their design.

For a copy of the Assistant Treasurer's Press Release No 86, 24 October 2008 go here.

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