Edited version of private advice

Authorisation Number: 1052382628953

Date of advice: 14 April 2025

Ruling

Subject: Foreign life insurance policy

Question

Question 1

When you surrender the life insurance/assurance policy, will the payment received be assessable income under section 26AH of the Income Tax Assessment Act 1936 ('ITAA 1936')?

Answer 1

No.

Certain bonuses received upon surrender or maturity of life insurance/assurance policy's may be included in a taxpayer's assessable income under section 26AH of the ITAA 1936. However, the operation of section 26AH of the ITAA 1936 is such that reversionary bonuses received more than 10 years from the date of commencement of a life insurance/assurance policy are excluded from assessable income.

You have held the policy for more than 10 years therefore the resulting bonus is not included in your assessable income.

Question 2

Will any capital gain or capital loss, resulting from the surrender of the life insurance/assurance policy, be disregarded pursuant to section 118-300 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Answer 2

Yes.

Section 118-300 of the ITAA 1997 operates to disregard a capital gain or loss made from a CGT event that happened in relation to a CGT asset that is a taxpayer's interest in rights under a general insurance policy, a life insurance policy or an annuity instrument. A capital gain or loss is disregarded in cases where the CGT event happens to a policy of insurance on the life of an individual whereby the original owner of the policy is the individual to which the policy applies.

You are the original owner of the insurance policy therefore a capital gain or loss will be disregarded upon the surrender of the policy pursuant to section 118-300 of the ITAA 1997.

This private ruling applies for the following periods:

Year ending X June 20XX.

Year ending X June 20XX

The scheme commenced on:

XX July 20XX.

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian resident for tax purposes.

In November 20XX, you invested funds into the policy with the Company.

The policy requires a lump sum investment of a minimum amount, to be invested for a minimum of X years.

The policy's product guide states the following:

•                There are two investment options

•                Additional lump-sum payments can be made into the policy at any time

•                The policy can be cashed in, in full or in part, at any time

•                The policy can be set up on your own life, or another person's life, or on up to ten lives

•                In the event of death of the policy holder, the company will pay a lump sum equal to 101% of the cash-in value, or, if lower, the cash-in value plus additional funds upon death. The death benefit is not a guaranteed amount as it depends on the cash-in value at the time of death.

•                The company is a tax-exempt insurance company registered in Country B and is not subject to income tax, capital gains tax or corporation tax in Country B.

You are the original owner, and life insured, of the policy.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 26AH

Income Tax Assessment Act 1936 section 118-300

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