Your FLP for an income year is a life assurance policy issued by an entity that was not a resident at any time in that income year.
A life assurance policy is one that provides for the payment of benefits:
- upon death, other than death by accident or specified sickness only, or
- on the happening of a specified event which relates to the ending or continuing of a human life.
A life assurance policy also includes an instrument that grants an annuity for a term dependent upon a human life. [subsection 482(2)]
The FIF measures do not apply to the following four categories of life policies:
- an Australian policy, provided that the entity which issued the policy was authorised under the Life Insurance Act 1995 to carry on life insurance business in Australia when it issued the policy
- policies that provide for payment of benefits on death, or death or permanent disability only
- policies issued before 1 July 1992 that cannot, after that date, be cancelled, surrendered or redeemed and for which the terms have not, after that date, been altered in any material way, or
- a contract of reinsurance between a resident insurer and a non-resident reinsurer for life assurance policies which provide only life cover. [paragraphs 482(2)(e) and (f)]
New legislation exempts complying superannuation funds from the FIF rules with application from 1 July 2003.
For more information, phone the Business Tax Reform Infoline on 13 28 66.
Interest in an FLP subject to taxation
Your assessable income for an income year includes FIF income if:
- you had an interest in an FLP at any time during an FLP's notional accounting period that ends in your income year, and
- you were a resident at any time in that income year. [subsection 485(4)]
The measures do not apply to an interest in an FLP if you disposed of that interest before 30 June 1993. [subsection 485(5)]
Notional accounting period of an FLP
The FIF income that is included in your assessable income is calculated for a 'notional accounting period' of the FLP.
A notional accounting period of your FLP will generally coincide with your income year - that is, a 12-month period ending 30 June each year.
If the FLP existed before 1 January 1993, the first notional accounting period of the FLP commences on 1 January 1993 and ends on 30 June 1993. If the policy came into existence on or after 1 January 1993, the first notional accounting period commences on the day that it came into existence and ends on the following 30 June [subsection 487(7)].
Electing a notional accounting period
You may elect a different notional accounting period if a cash surrender value of your FLP is available in the same month of each year. This election is irreversible for as long as you hold an interest in that particular FLP.
Your FLP's new notional accounting period will begin:
- on the first day of the month following the last day of the month in which the cash surrender value of your FLP is available in each year, and
- in the month immediately prior to your electing a new notional accounting period in which the cash surrender value of your FLP is available each year. [subsections 487(3) and (7)]
The current notional accounting period of Judith's FLP is 1 July to 30 June each year. In November of each year a cash surrender value will be available for her FLP. In September 2003 she elects to use a different notional accounting period for her FLP. The new notional accounting period will begin on the first day of the month following November - that is, 1 December - and end 12 months later on 30 November each year.
However, the first new notional accounting period of Judith's FLP does not begin in the December following the election (December 2003) but begins in the December before the election is made (December 2002). Therefore, the first new notional accounting period for Judith's FLP is 1 December 2002 to 30 November 2003.
The months between the start of her old notional accounting period (1 July 2002) to the start of her new notional accounting period (1 December 2002) are also a notional accounting period - that is, 1 July 2002 to 30 November 2002. [section 487]
The FIF income for the period 1 July 2002 to 30 November 2002 will be returned in the 2002-03 income year. The FIF income for the period 1 December 2002 to 30 November 2003 will be included in the 2003-04 income year.End of example