Commentary on Sections Structure of Chapters Overview Section 499: Meaning of “insurance year” and “final insurance year”
1969.This section is based on sections 546, 546B and 546C of ICTA.
1970.Subsection (1) defines an “insurance year”. The definition is applied for the purposes of this Chapter, whereas in the source legislation the application of the definition of “year” is more limited. The source legislation to which the definition is relevant, section 546 of ICTA, is rewritten in a great number of locations in this Chapter. It is no longer practical, or indeed necessary, to limit the application of the definition.
1971.Subsection (3) sets out how the basic rule is varied when the sequence of insurance years is broken by certain of the events listed in section 484(1). Where such an event occurs, the year ends at that point and is called the “final insurance year”. An assignment of all the rights under the policy or contract is not such an event, as the policy or contract continues in existence despite the change of ownership of the rights.
1972.Where the term “final insurance year” is used in this Chapter, it therefore indicates that one of the specified events in section 484(1) has occurred.
1973.One of those events is “a death giving rise to benefits” under a policy of life insurance. The source legislation for the meaning of “insurance year” merely refers to a “death”, and does not cross-refer to the definition of a chargeable event in sections 540, 542 and 545 of ICTA. A cross-reference to events under section 484, rather than words describing the event, is more precise. It also disregards a death which does not give rise to benefits.
1974.Subsection (5) caters for when the final insurance year would begin and end in the same tax year. But for the rule in this subsection, the previous insurance year would end in the same tax year as the final year, and any part surrender or assignment in that year might give rise to a gain that would be charged for that year in addition to the gain on the final event. To avoid (in most cases) the complexity of two sets of computations in one tax year, the previous insurance year is merged with the final year as a single insurance year, the “final insurance year”.
1975.Where the year is the final insurance year, section 509(5) accordingly sets aside any chargeable event that would arise on a periodical calculation under section 507 following a part surrender or assignment,. But, where the circumstances in section 510 apply, and the year in question is the final insurance year, there will be more than one computation in that year, and there may be a gain on a transaction-related calculation as well as a gain under section 491. In most cases the persons liable in respect of the gain on the transaction-related calculation and the gain on the final event are different.