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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1013083931127

Date of advice: 7 September 2016

Ruling

Subject: Foreign life policy

Question and answer

Are you required to pay tax on a lump sum from a foreign life policy in Australia?

No.

This ruling applies for the following periods:

Year ended 30 June 2016

Year ending 30 June 2017

The scheme commenced on:

1 July 2015

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You have an overseas life policy.

This policy is about to expire and you will receive a lump sum payment.

You have held the policy for more than 10 years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1936 section 26AH

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:

Taxation Ruling IT 2504 - income tax: deductibility of interest on borrowed funds - life assurance policies provides the Commissioner's views on bonuses received from life insurance policies. It states at paragraph 2:

In your case, the lump sum payment 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.

You will receive lump sum payment from the life policy when it matures.

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 - income tax: bonuses paid on certain life assurance policies - section 26AH - interpretation and operation discusses the application of section 26AH of the ITAA 1936 to short-term life assurance policies.

Bonuses received under life insurance policies are not assessable under section 26AH of the ITAA 1936 if the policy has been held for a minimum of 4 or 10 years, depending on whether the date of commencement of risk is before or after 27 August 1982.

In your case, you will receive a lump sum payment when the life policy matures. You have held the policy for more than 10 years.

Therefore, the lump sum payment you receive is not assessable under section 26AH of the ITAA 1936.

You are therefore not required to include the lump sum payment in your Australian income tax return.

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