ATO Interpretative Decision

ATO ID 2001/666

Income Tax

Reversionary bonus tax offset - refundable tax offset
FOI status: may be released

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is the taxpayer entitled to a refund of the tax offset available under section 160AAB of the Income Tax Assessment Act 1936 (ITAA 1936) where the amount of the tax offset exceeds the amount of the tax payable?

Decision

No. The taxpayer is not entitled to a refund of the tax offset available under section 160AAB of the ITAA 1936 as this offset is not a refundable tax offset.

Facts

The taxpayer invested in an Investment Bond offered by a life assurance company after 7 December 1983 and was issued with an investment-linked policy of life assurance.

Under the investment bond, bonuses received would not be paid to the taxpayer until the policy matured, or was surrendered/forfeited.

The taxpayer surrendered the policy of life assurance within 10 years and received a return of capital invested and a bonus.

The taxpayer included the appropriate amount of the reversionary bonus in their assessable income.

The amount of the tax offset for the bonus exceeded the amount of the tax payable under the assessment.

Reasons for Decision

Under subsection 26(i) of the ITAA 1936 the assessable income of a taxpayer includes any amount received as a bonus, except bonuses paid on maturity, forfeiture or surrender of a policy of life assurance (reversionary bonuses). Reversionary bonuses are included in assessable income under section 26AH of the ITAA 1936.

The sum received by the taxpayer after surrendering the investment bond is the amount of capital invested plus the reversionary bonuses earned. The amount of the reversionary bonus which is included in the taxpayer's assessable income is calculated under subsection 26AH(6) of the ITAA 1936.

If an amount is included in the assessable income of a taxpayer under section 26AH of the ITAA 1936, the taxpayer is entitled to a tax offset under section 160AAB of the ITAA 1936.

Generally the amount of a tax offset is limited to the amount of tax payable. The exception to this is where the tax offset is a refundable tax offset under Division 67 of the Income Tax Assessment Act 1997 (ITAA 1997). Division 67 of the ITAA 1997 allows for the refund of certain tax offsets where the taxpayer's offsets exceed the tax payable. Section 67-25 of the ITAA 1997 lists the tax offsets which are refundable. The tax offset available under section 160AAB of the ITAA 1936 is not included in this list and therefore is not refundable.

The taxpayer is therefore not entitled to a refund of the excess tax offset available under section 160AAB of the ITAA 1936.

Date of decision:  10 August 2001

Year of income:  Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Division 67
   section 67-25

Income Tax Assessment Act 1936
   section 26AH
   section 160AAB
   subsection 26(i)

Keywords
Investment income
Life assurance
Life assurance bonuses
Short term life assurance
Passive investment income

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 November 2001

ISSN: 1445-2782

history
  Date: Version:
You are here 10 August 2001 Original statement
  6 June 2008 Archived

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