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Edited version of your written advice

Authorisation Number: 1051199872757

Date of advice: 9 March 2017

Ruling

Subject: Lump sum from foreign life policy

Question

Is the lump sum payment (including bonuses) received on maturity of your parent's life insurance policies in country A assessable in Australia?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2017

The scheme commenced on

1 July 2016

Relevant facts

You are a resident of Australia for tax purposes.

Your parent's then employer took out two life assurance policies, one in # and the second in # on their life with benefit payable to the employer.

The employer held these whole of life policies in trust to benefit the member's widow, children and grandchildren.

The policies were never altered or changed.

The policies were surrendered upon the death of your parent on #.

You received $ from the trustee as your share of the proceeds from the policies.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Subsection 6-10

Income Tax Assessment Act 1997 Subsection 6-10(2).

Income Tax Assessment Act 1997 Section 118-300

Income Tax Assessment Act 1936 Section 26AH

Income Tax Assessment Act 1936 Section 99B

Income Tax Assessment Act 1936 Subsection 99B(1)

Income Tax Assessment Act 1936 paragraph 99B(2)(b)

Income Tax Assessment Act 1936 Part X1

Reasons for decision

The assessable income of an Australian resident includes ordinary income and statutory income from all sources, whether in or out of Australia.

Ordinary income is income according to ordinary concepts.

The payment from the trust is a distribution from a non-resident trust and is considered under section 99B of the ITAA 1936 as statutory income.

Subsection 99B(1) of the ITAA 1936 provides that where, during a year of income, a beneficiary who was a resident at any time during the year is paid a distribution for a trust, or has an amount of trust property applied for their benefit, that amount is to be included in the assessable income of the beneficiary.

The amount to be included in the assessable income of the beneficiary under section 99B of the ITAA 1936 is the amount paid to or applied for the benefit of the beneficiary other than:

Bonuses received on a life insurance policy are not income according to ordinary concepts. Bonuses received on surrender or maturity of a life policy held less than ten years from commencement of the policy are assessable under section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936) as statutory income. Statutory income is not ordinary income but is included in assessable income by a specific provision in the legislation.

However, bonuses received more than ten years from the commencement of the policy do not fall within the operation of section 26AH of the ITAA 1936 and are not included in assessable income.

The policies were held by the foreign trust for over ten years after the commencement of the policies and there were no changes to the policy or premiums. The amounts received upon surrender of your parent's policies would not have been included in a resident taxpayer's assessable income under section 26AH of the ITAA 1936.

As the lump sum received by the trust would not be included in the assessable income of a resident taxpayer, paragraph 99B(2)(b) of the ITAA 1936 will therefore apply to exclude the amount from your assessable income.

As the lump sum you received is not assessable in Australia there is no need to indicate on your 2016-17 tax return that you received this amount.

Conclusion

The lump sum payment you received because of the payout of your parent's life insurance policies in country A is not assessable in Australia.

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