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ATO Interpretative Decision

ATO ID 2002/199

Income Tax

Deduction for ordinary bundled endowment policies issued by a friendly society
FOI status: may be released

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

How does section 320-75 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to ordinary bundled endowment policies issued by a friendly society?

Decision

Section 320-75 of the ITAA 1997 allows a deduction for the investment component of ordinary bundled endowment policies issued by a friendly society.

Facts

A friendly society issues ordinary bundled endowment policies, and charges a fee for administering these policies.

Reasons for Decision

Section 320-75 of the ITAA 1997 allows a deduction for a component of premiums in respect of ordinary non-participating investment policies. An ordinary bundled endowment policy issued by a friendly society is an ordinary non-participating investment policy.

If the policy is issued before 1 July 2001, the amount allowed as a deduction under section 320-75 of the ITAA 1997 is the sum of the net premium less the amount that an actuary determines (having regard to the change over in the income year in the sum of the net current termination values of the policies and the movements in those values during the year) to be attributable to fees and charges (including risk charges)

If the policy is issued after 1 July 2001, the amount allowed as a deduction under section 320-75 of the ITAA 1997 is the lesser of :

•
the amount specified in the policy to be the capital component of the premium adjusted for any part of the premium that is reinsured;
•
the sum of the net premiums less the amount that an actuary determines (having regard to the change over the income year in the sum of the net current termination values of the policies and the movements in those values during the year ) to be attributable to fees and charges (including risk charges).

The current termination value of the policy is the surrender value of the policy.

(Note: Taxation Laws Amendment Bill (No 4) 2001 (which has lapsed) introduced an amendment which changes the date the policy is issued from 1 July 2001 to 1 July 2002.)

Date of decision:  27 August 2001

Year of income:  Year ended 30 June 2001 and subsequent income years

Legislative References:
Income Tax Assessment Act 1997
   Section 320-75

Related ATO Interpretative Decisions
ATO ID 2002/197
ATO ID 2002/198
ATO ID 2002/200
ATO ID 2002/201

Keywords
Life assurance
Endowment insurance

Siebel/TDMS Reference Number:  DW291373

Business Line:  Public Groups and International

Date of publication:  28 February 2002

ISSN: 1445-2782


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