| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011712751920
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Assessability of income from an income protection policy and deductibility of an income protection premium
Question 1
Will the rulee be assessable on the income from an income protection insurance policy owned by the trustee of the trust estate accordance with section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer: No
Question 2
Will be rulee be entitled to claim a deduction for a particular financial year for the income protection insurance premium that was paid by the trustee of trust estate in accordance with section 8-1 of the ITAA 1997?
Answer: No
This ruling applies for the following period:
1 July 2008 to 30 June 2009
Relevant facts
The rulee is also the trustee of the trust estate.
An income protection policy was taken out originally in the name of a business with rulee as the principle. As the business ceased during one financial year, at the beginning of the next financial year the income protection policy had a change of holder to the trustee for the trust estate.
A letter confirming the transfer of ownership of the policy has been provided showing the rulee as the previous owner and at the beginning of the particular financial year the new owner was the trustee of the relevant trust.
The income protection insurance premiums for the particular financial year were paid by the trustee of the trust estate.
The periodic payments from a claim made under the income protection insurance policy were received by the trustee of the trust estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Question 1
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Weekly or periodic compensation payment received as compensation for loss of wages is assessable as ordinary income (they are not assessable under paragraph 26(e) of the Income Tax Assessment Act 1936).
The compensation payments made under an income protection insurance policy for the particular financial year were received in the hands of the trustee of the trust estate as the owner of the policy. In your case, as the compensation payments were paid to you in your capacity as trustee of the trustee estate and not you individually, they do not form part of your assessable income according to section 6-5 of the ITAA 1997.
Question 2
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.
It is generally accepted that premiums paid under an insurance policy that provides the taxpayer with an income stream during a period of illness or injury are deductible under section 8-1 of the ITAA 1997. However, if the policy also provides for capital benefits (for example, a lump sum payment for the loss of a limb), that part of the premium attributable to those capital benefits is not deductible.
In this case, the income protection insurance premium has been paid by you in your capacity as trustee of the trust estate, and the premium is therefore not available to you individually as a deduction in accordance with section 8-1 of the ITAA 1997.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
