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Edited version of your private ruling
Authorisation Number: 1012565182456
Ruling
Subject: Foreign Life Insurance Policy Payout
Question and Answer:
Is the bonus received on maturity of your foreign life assurance policy (FLP) assessable income?
No.
This ruling applies for the following periods:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You are an Australian resident for taxation purposes.
You took out a FLP over 10 ten years ago.
Annual bonuses were accumulated in the fund and payable only on maturity.
No bonuses have been paid to you during the life of the policy.
The policy matured in the relevant income year.
You received proceeds of greater than A$50,000 on the maturity of the policy.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 26AH
Income Tax Assessment Act 1997 Division 301
Reasons for decision
Assessability of Foreign Life Insurance Policy Maturity Payout
Section 6-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income consists of both ordinary income and statutory income. However, an amount of ordinary or statutory income will not be assessable income if the amount is made exempt or is otherwise excluded from assessable income.
The proceeds received from the maturity of your life assurance policy are classed as a reversionary bonus. A reversionary bonus paid under a short term life policy on maturity, forfeiture or surrendered taken out after 28 August 1982 is subject to special tax treatment if the risk commenced after 7 December 1983 under Section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936). Section 26AH(2) of the ITAA 1936 states that if a reversionary bonus is received after 10 years from commencement of a life insurance policy, that the bonus received is not assessable.
Therefore, as you have held your life assurance policy for over 10 years, the reversionary bonus received from the maturity of the policy is not assessable income for income tax purposes under Section 26AH(2) of the ITAA 1936.
Foreign Investment Fund measures
The foreign investment fund (FIF) measures, which applied prior to the 2010/11 income year, were designed to counter tax avoidance opportunities that remained after the earlier introduction of the controlled foreign company and transferor trust measures.
The FIF measures were contained in the ITAA 1936 former Pt XI. They applied to Australian residents who had an interest in a foreign company or trust at the end of a year of income and those who held a foreign life assurance policy at any time in the year of income.
The FIF rules were repealed with effect from the 201/11 income year onwards.
Therefore, the exemption for an interest of A$50,000 or less for individuals with small levels of offshore investments under the previous FIF taxation provisions is no longer applicable to your foreign investments.
Your FLP is subject to taxation under Section 26AH of the ITAA 1936 outlined above not the repealed FIF measures.
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