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The 30/20 Requirements

21.147. Under provisions introduced in 1961 a life insurance company is virtually obliged to maintain 30 per cent of its assets in public sector securities, and at least 20 per cent of its assets in Australian Government securities. Failure so to do results in:

  • (a) the loss of exemption on the income derived from assets referable to superannuation business; and
  • (b) a reduction in the section 46 dividend rebate available.

Over-compliance with the 30/20 requirements generates ‘bonus points’ for a life insurance company in that the section 115 deduction is slightly increased. This has had the effect of making investment in public sector securities relatively more attractive, other things being equal, than investment in the private sector and has led to a greater margin between public and private sector interest rates than would be accounted for by market factors alone. However, the reduction in the section 115 deduction has led to a lessening of the value of such bonus points and the abolition of the deduction would mean that no tax advantage could be gained by exceeding the minimum requirements.

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