INCOME TAX ASSESSMENT ACT 1936

PART III - LIABILITY TO TAXATION  

Division 2 - Income  

Subdivision A - Assessable income generally  

SECTION 26AH   BONUSES AND OTHER AMOUNTS RECEIVED IN RESPECT OF CERTAIN SHORT-TERM LIFE ASSURANCE POLICIES  

26AH(1)  


In this section, unless the contrary intention appears:

agreement
means any agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.

assurance year
, in relation to an eligible policy, means the period of 12 months commencing on, or on any anniversary of, the date of commencement of risk of the policy.

date of commencement of risk
, in relation to an eligible policy, means the date of commencement of the period in respect of which the first or only premium paid under the policy was paid or, if the first or only premium was not paid in respect of a period, the date on which that premium was paid.

eligible period
, in relation to an eligible policy, means the period of 10 years commencing on the date of commencement of risk of the policy.

eligible policy
means a life assurance policy in relation to which the date of commencement of risk is after 27 August 1982, other than a funeral policy (as defined in the Income Tax Assessment Act 1997 ) issued on or after 1 January 2003.

eligible reckoning date
, in relation to an eligible policy, means the date of commencement of an assurance year that, for the purposes of an application of subsection (13), is the premium increase year referred to in that subsection.

26AH(2)  


Where a paid-up life assurance policy is issued to a taxpayer in lieu of an eligible policy:


(a) the paid-up policy shall, for the purposes of this section, be deemed to be a continuation of the eligible policy; and


(b) no amount shall be taken for the purposes of subsection (4) to have been re-invested or otherwise dealt with on behalf of the taxpayer or as he or she directs in connection with the issue of the paid-up policy to the taxpayer in lieu of the eligible policy.

26AH(3)  
This section applies to any amount received after 27 August 1982 under an eligible policy.

26AH(4)  


For the purposes of this section, but subject to subsection (5), a taxpayer shall be taken to have received an amount under or in relation to an eligible policy although the amount is not actually paid to the taxpayer but is re-invested or otherwise dealt with on his or her behalf or as he or she directs.

26AH(5)  
Subsection (4) does not apply in relation to an amount in relation to an eligible policy if the amount is re-invested or otherwise dealt with on behalf of the taxpayer or as the taxpayer directs so as to increase the amount that might reasonably be expected to be received under the eligible policy on a surrender or maturity of the eligible policy.

26AH(6)  
Where, during the eligible period in relation to an eligible policy, a taxpayer receives an amount (in this subsection referred to as the relevant amount ) under the policy as or by way of a bonus, being an amount that, but for this section, would not be included in the assessable income of the taxpayer of any year of income, the assessable income of the taxpayer of the year of income in which the relevant amount is received shall include:


(a) if the relevant amount is received during the first 8 years of the eligible period - an amount equal to the relevant amount;


(b) if the relevant amount is received during the ninth year of the eligible period - an amount equal to two-thirds of the relevant amount; or


(c) if the relevant amount is received during the tenth year of the eligible period - an amount equal to one-third of the relevant amount.

26AH(6A)  


If, during the year of income, an amount referred to in subsection (6) is received during the eligible period in relation to an eligible policy held by the trustee of a non-complying superannuation fund:


(a) subsection (6) does not apply to the amount; and


(b) the amount is included in the assessable income of the fund of the year of income.

26AH(7)  
Subsection (6) does not apply to any amount received by a taxpayer in a year of income under an eligible policy where:


(a) the amount is received in consequence of:


(i) the death of the person on whose life the policy was effected; or

(ii) an accident, illness or other disability suffered by the person on whose life the policy was effected; or


(aa) the eligible policy is an RSA; or


(b) the eligible policy is held by the trustee of:


(i) a complying superannuation fund; or

(ii) a complying approved deposit fund; or

(iii) a pooled superannuation trust; or


(ba) the eligible policy is issued by a life assurance company and the company ' s liabilities under the policy are to be discharged out of:


(i) complying superannuation assets within the meaning of the Income Tax Assessment Act 1997 ; or

(ii) segregated exempt assets within the meaning of that Act; or


(c) except where the policy was effected, purchased or taken on assignment with a view to it being forfeited, surrendered or otherwise terminated, or to it maturing, within 10 years - the amount was received by the taxpayer by reason of the forfeiture, surrender or other termination of the whole or a part of the policy in circumstances arising out of serious financial difficulties of the taxpayer.

26AH(8)  
Where:


(a) subsection (6) would, but for this subsection, apply to an amount (in this subsection referred to as the relevant amount ) received by a taxpayer by reason of the forfeiture, surrender or other termination of the whole or a part of an eligible policy; and


(b) the Commissioner, having regard to:


(i) the total amount of premiums paid under the eligible policy;

(ii) the total amounts received by the taxpayer or by any other person under the eligible policy and the total amounts of bonuses included in the amounts so received;

(iii) the amount of the surrender value of the eligible policy at the time when the forfeiture, surrender or other termination occurred; and

(iv) such other matters as the Commissioner considers relevant, is of the opinion that it would be unreasonable for subsection (6) to apply to the relevant amount or to a part of the relevant amount;

subsection (6) does not apply to the relevant amount, or to that part of the relevant amount, as the case may be.

26AH(9)  
Where:


(a) otherwise than as or by way of a bonus, a taxpayer receives an amount (in this subsection referred to as the relevant amount ) under an eligible policy; and


(b) the Commissioner is of the opinion that the relevant amount or a part of the relevant amount represents the whole or part of:


(i) a bonus that has accrued or has been declared in respect of the policy; or

(ii) a bonus that can reasonably be expected to accrue in respect of the policy;

the relevant amount or the part of the relevant amount, as the case may be, shall, for the purposes of subsection (6), be deemed to have been received by the taxpayer under the policy as or by way of a bonus.

26AH(10)  
Where:


(a) subsection (9) applies by reason that the Commissioner has formed an opinion under paragraph (9)(b) that the whole or a part of an amount received by a taxpayer represents the whole or a part of a bonus; and


(b) the taxpayer subsequently receives an amount (in this subsection referred to as the actual bonus ), being the whole or a part of the bonus, or of the part of the bonus, as the case may be, referred to in paragraph (a) of this subsection;

the following provisions have effect:


(c) the operation of subsection (9) is not affected by the receipt of the actual bonus; and


(d) no part of the actual bonus shall be included in the assessable income of the taxpayer.

26AH(11)  
Where, in relation to an eligible policy, a taxpayer receives an amount from the assurer, or from another person at the request of, or under an agreement with, the assurer, by way of an advance or loan in respect of which interest is not payable or in respect of which interest is payable at a rate less than the rate of interest that could reasonably be expected to be payable in respect of a loan of the same amount made on similar terms and conditions by the assurer or the other person, as the case may be, to a person with whom the assurer or that other person was dealing at arm ' s length, the amount shall, for the purposes of subsection (9), be deemed to be an amount to which paragraph (9)(a) applies.

26AH(12)  
Where an eligible policy, or any right to receive any benefits that have accrued, or will or may reasonably be expected to accrue, under an eligible policy, is sold or assigned in whole or in part by a taxpayer during the eligible period in relation to the policy:


(a) the amount of any consideration received by the taxpayer in respect of that sale or assignment shall be deemed to be an amount to which paragraph (9)(a) applies; and


(b) subsections (9) and (10) apply in relation to that consideration as if " represents " were omitted from paragraphs (9)(b) and (10)(a) and " is attributable to " were substituted.

26AH(13)  
Where the amount of the premiums payable under an eligible policy in relation to an assurance year (in this subsection referred to as the premium increase year ) exceeds by more than 25% the amount of the premiums payable under the policy in relation to the immediately preceding assurance year, the eligible period in relation to the policy shall, for the purposes of:


(a) the application of subsection (6) in relation to any amount received under the policy after the date of commencement of the premium increase year and before the first subsequent eligible reckoning date (if any) in relation to the eligible policy; and


(b) the application of subsection (12) in relation to any sale or assignment of the policy after the date of commencement of the premium increase year and before the first subsequent eligible reckoning date (if any) in relation to the eligible policy;

be reckoned from the date of commencement of the premium increase year.

26AH(14)  
This section has effect in relation to an eligible policy in relation to which the date of commencement of risk is on or before 7 December 1983 as if:


(a) " 10 years " were omitted from the definition of eligible period in subsection (1) and " 4 years " were substituted;


(b) " 8 years " , " ninth year " and " tenth year " were omitted from subsection (6) and " 2 years " , " third year " and " fourth year " respectively were substituted; and


(c) " 10 years " were omitted from paragraph (7)(c) and " 4 years " were substituted.


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