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Ruling
Subject: Endowment mortgage
Question and Answer
When you receive your benefit from an endowment mortgage policy that you took out overseas, will it be exempt from tax in Australia?
Yes
This ruling applies for the following period
Yea ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
When you were residents in a foreign country, you took out an "endowment mortgage policy" to ensure you would be able to pay the mortgage on your home in the foreign country.
You obtained a number of policies all maturing in the same year
You have since sold your home in the foreign country.
You now reside in Australia.
When you paid off your home loan on the foreign property, you did not cancel the life insurance policy part of the endowment mortgage ploicy.
When the insurance matures, you will be receiving a benefit from the policy.
Relevant legislative provisions
Income Tax Assessment Act 1936
Section 25
Section 26AH
Income Tax Assessment Act 1997
Section 6-5
Section 6-10
Reasons for decision
Division 6 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what amounts are included in the taxpayer's assessable income. It provides that the following amounts are included:
· income according to ordinary concepts; that is, ordinary income (section 6-5 of the ITAA 1997), or
· an amount which is included by a specific provision about assessable income; that is, statutory income (section 6-10 of the ITAA 1997).
Taxation Ruling IT 2504 provides the Commissioner's views on bonuses received from life insurance policies. It states at paragraph 2:
Bonuses received on a policy of life assurance are not income according to ordinary concepts and therefore do not constitute assessable income under subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
As the bonus will not be ordinary income, it will only be included in your assessable income if it is statutory income.
Section 26AH of the ITAA 1936 includes in assessable income certain bonuses received under short term life insurance policies taken out after 27 August 1982, referred to as 'eligible policies'. As your policy commenced after that date, it is assessed under that provision.
You received a final bonus on maturity of your policy. The final bonus will be considered to be a reversionary bonus.
Section 26AH of the ITAA 1936 provides for the taxation of certain reversionary bonuses received under a relevant life assurance policy (an eligible policy) during a specified period (the eligible period).
Taxation Ruling IT 2346 discusses the application of section 26AH of the ITAA 1936 to short-term life assurance policies. An eligible policy is defined to mean a policy of life assurance in relation to which the date of commencement of risk is after 27 August 1982.
Bonuses received under policies where the date of commencement of risk is after 27 August 1982 are not assessable under section 26AH of the ITAA 1936 if the policy has been held for a minimum of 10 years.
Your policy commenced after 27 August 1982, you have held them for a period of more than 10 years. Accordingly, the bonuses paid to you on maturity are not included in your assessable income.
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