ATO Interpretative Decision
ATO ID 2003/482
Income Tax
Friendly Society Funeral Policy - funeral benefits for deceased spouseFOI status: may be released
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can the Tax Office authorise a friendly society to pay out a surviving spouse's benefits from their 'funeral policy', as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), for the funeral expenses of their deceased spouse?
Decision
No. The Tax Office has no authority to authorise a friendly society to pay out the benefits of a funeral policy before the death of the insured person.
Facts
A married couple, John and Betty, each took out a funeral policy from a friendly society. John was the insured person under his policy and Betty the insured person under hers.
The friendly society's benefit fund rules have no provision for payment of benefits under a funeral policy other than on the death of the insured person.
Both policies had balances of $1,000 at the time of John's death. John's funeral expenses totalled $9,000 and benefits of $1,000 were paid from his policy. Betty requested that the friendly society also apply her policy benefits for John's funeral expenses.
The friendly society advised that this might be possible if they have approval from the Tax Office.
Reasons for Decision
Benefit funds of friendly societies are constituted by rules. The rules constitute the terms of the contract between the society and individual policy holders. If the benefit fund rules have no provision for payment of benefits under a funeral policy other than on the death of the insured person, the Tax Office has no authority to authorise a friendly society to refund or pay out the amount invested in a funeral policy before the death of the insured person.
Date of decision: 8 April 2003Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
subsection 995-1(1)
Keywords
Friendly society
Friendly society bonds
Funeral bonds
Insurance & insurance industry
Life insurance policies
ISSN: 1445-2782