ATO Interpretative Decision
ATO ID 2003/1200
Income Tax
Insurance policy: refund of imputation creditsFOI status: may be released
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This ATOID has equal application to section 202-40 of the Income Tax Assessment Act 1997. All reference to section 160APA of the Income Tax Assessment Act 1936 should therefore be taken as including reference to section 202-40.
The changes made to section 67-25 of Income Tax Assessment Act 1997, will not affect the meaning and application of this particular ATOID on its facts.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
If a taxpayer receives income from a friendly society insurance bond, are they entitled to a refund of imputation credits under section 67-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. If a taxpayer receives income from a friendly society insurance bond, they are not entitled to a refund of imputation credits under section 67-25 of the ITAA 1997.
Facts
A taxpayer invested in a friendly society insurance bond and has held it for more than 10 years. The friendly society pays tax on the investment income received on the bond and, after holding the bond for more than 10 years, the taxpayer does not pay tax on the income they received from the bond as it is tax paid.
Reasons for Decision
Taxpayers who are eligible for imputation credits on dividends paid on or after 1 July 2000 are entitled to a refund of excess imputation credits if the credits exceed their tax payable.
Imputation credits may only be claimed on frankable dividends. Section 160APA of the Income Tax Assessment Act 1936 (ITAA 1936) defines 'frankable dividend' to include a dividend within the meaning of section 6 of the ITAA 1936.
Subsection 6(1) of the ITAA 1936 definition of 'dividend' in paragraph (f) of the definition excludes a reversionary bonus on a policy of life assurance from the definition.
Under subsection 26AH(6) of the ITAA 1936, reversionary bonuses received under a life assurance policy with a date of commencement of risk after 7 December 1983 are assessable only if the policy has been held for less than 10 years.
Unlike annual bonuses, reversionary bonuses are paid on maturity, forfeiture or surrender of life assurance policies.
The friendly society insurance bond is considered to be a life assurance policy and the income received on this policy is considered to be a reversionary bonus. As they are excluded from subsection 6(1) of the ITAA 1936 definition of dividends, reversionary bonuses are not eligible for imputation credits.
Date of decision: 22 December 2003Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 67-25
subsection 26AH(6)
subsection 6(1)
section 160APA
Keywords
Friendly societies
Friendly society bonds
Imputation system
Insurance & insurance industry
Insurance bonds
Life insurance policies
Refund of imputation credits
ISSN: 1445-2782