ATO Interpretative Decision

ATO ID 2002/398 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because it contains a view in respect of provisions of the Income Tax Assessment Act 1936 that don't apply after the 2009-10 income year. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including the 2009-2010 income year
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the increase in value of foreign life assurance policies held by an Australian resident taxpayer, assessable under section 529 of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. The increase in value of the taxpayer's foreign life assurance policies is assessable income under section 529 of the ITAA 1936.

Facts

An individual who became an Australian resident in the early 1990's, had taken out a number of life assurance policies before leaving their previous country of residence.

The policies, payable by monthly premiums, mature 20 years or more after their respective dates of commencement. Cash distributions are payable only on maturity, although all the policies held can be surrendered before maturity.

None of the policies are Australian policies. They are not subject to taxation in the previous country of residence and they do not involve reinsurance.

The taxpayer's interests in foreign life policies (FLPs) exceed $50,000.

Reasons for Decision

Section 529 of the ITAA 1936 operates to include an increase in the taxpayer's interest in FLPs in the taxpayer's assessable income under the foreign investment fund (FIF) measures contained within Division 16 of the ITAA 1936.

A FLP is defined in section 482 of the ITAA 1936 as a life assurance policy issued by an entity that was not a resident of Australia at any time in that year of income. There are four exclusions from the definition of a life assurance policy for the purposes of the foreign investment fund (FIF) measures:

(1)

An Australian policy

(2)

Policies where the payment of money is only on death, or death or permanent disability

(3)

Policies issued before 1 July 1992 which cannot, after that date, be cancelled, surrendered or redeemed and for which the terms have not, after that date, been altered in any material way

(4)

A contract of reinsurance between a resident insurer and a non-resident reinsurer for life insurance policies which provide only life cover.

In this case, none of the exclusions apply. The policies are not Australian policies. The payment of money occurs not only on death or permanent disability as the policies all have maturity dates upon which they will be paid out, they may be surrendered at any time for value, and they do not involve reinsurance.

There are also a number of other exemptions from the FIF regime. However none of the exemptions apply in this case.

Accordingly, the life policies held by the taxpayer are considered to be life assurance policies that are subject to the FIF provisions.

Year of income:  Year ended 30 June 1997 Year ended 30 June 1998 Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   section 482
   section 529

Keywords
Foreign Investment Funds
Life assurance policy

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  28 January 2002

ISSN: 1445-2782