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Edited version of your private ruling
Authorisation Number: 1012366539706
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Ruling
Subject: Income-bonuses
Question
Is the investment earnings component of your life insurance policy included in your assessable income?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You hold a Life Insurance bond (the policy).
An amount of investment earnings accrued under the policy.
You did not withdraw any bonuses under the policy during the financial year.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 26AH
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 subsection 6-10(4)
Income Tax Assessment Act 1997 Section 10-5
Reasons for decision
The assessable income of an Australian resident includes ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and statutory income from all sources (subsection 6-10(4) of ITAA 1997).
Section 10-5 of the ITAA 1997 list those provisions about assessable income. The most relevant section in relation to your policy (referred to in your annual membership statement as investment earning) is section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with amounts paid as or by way of bonuses under life assurance policies taken out after 27 August 1982.
Section 26AH of the ITAA 1936 provides that a taxpayer's assessable income shall include bonuses, and some other amounts in the nature of bonuses, received under a relevant life assurance policy during a specified period.
Section 26AH of the ITAA 1936 primarily applies to amounts actually received by a taxpayer as or by way of a bonus under an eligible policy. When an amount of bonus is dealt with on behalf of or at the direction of the taxpayer, he or she is taken to have received that amount. In short, the taxpayer will generally be assessable on the bonus, depending on which year the bonus was received.
Paragraph 7 of Taxation Ruling IT 2346, which deals with bonuses paid on certain life assurance policies, explains, however, that the mere crediting of a bonus to a policy of life assurance is not to be taken as the receipt by the taxpayer of the bonus.
In other words, a taxpayer is not held to have received a bonus if it has merely been applied to increase the surrender or maturity value of a life assurance policy. If this is the case, the taxpayer will not be assessed on the bonus unless the policy, in whole or in part, is surrendered or forfeited before its maturity date.
In your case, a review of the information provided indicates the investment earnings have been credited to your policy and have not been received by you. Therefore there is no requirement to declare this amount in your taxation return as the amount is not assessable income under section 26AH of the ITAA 1936 or any other provision of the ITAA 1936 or the ITAA 1997.
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