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Edited version of private ruling
Authorisation Number: 1011592612480
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Ruling
Subject: Income from insurance policy
Is the income you receive from accidental death insurance policy as a result of your mother's death assessable income?
No.
This ruling applies for the following periods
1 July 1999 to 30 June 2000
1 July 2000 to 30 June 2001
1 July 2001 to 30 June 2002
1 July 2002 to 30 June 2003
1 July 2003 to 30 June 2004
1 July 2004 to 30 June 2005
1 July 2005 to 30 June 2006
1 July 2006 to 30 June 2007
1 July 2007 to 30 June 2008
1 July 2008 to 30 June 2009
1 July 2009 to 30 June 2010
1 July 2010 to 30 June 2011
1 July 2011 to 30 June 2012
1 July 2012 to 30 June 2013
1 July 2013 to 30 June 2014
1 July 2014 to 30 June 2015
The scheme commenced on
1 July 1999
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Your parent (deceased) purchased an Accidental Death Insurance policy in the late 1980's.
The cover was increased several years later to increase income to the beneficiary in the event of death by accident.
You are your parent's beneficiary.
Your parent died in an accident.
The Accidental Death Insurance policy came into force more than 10 years ago.
As your parent's beneficiary you receive a monthly payment, for life.
The policy holder withholds PAYG from your monthly payments.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 27H
Detailed reasoning
Section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) operates to include in assessable income the amount of any pension or annuity (pension) derived by a taxpayer during a year of income.
'Income' is not defined in the legislation and is given its meaning according to ordinary concepts and usages. Generally, receipts that have an element of periodicity, recurrence or regularity will be considered to be of an income nature.
Whether a receipt is assessable income or capital depends on the circumstances of the receipt and the reasons why it was paid. And 'it is the character of the receipt in the hands of the taxpayer as recipient that must be determined' (FC of T v. Slaven 84 ATC 4077; (1983) 15 ATR 242).
The last sentence in paragraph 15 of Taxation Ruling IT 155 states that:
Periodical payments under accident insurance policies should be treated as assessable income irrespective of the purpose for which the policy may have been taken out.
The payments made to you have the elements of periodicity and regularity and as such that the payments are clearly of a revenue nature. Therefore, the monthly payments would be assessable income under section 27H of ITAA 1936.
Where a lump sum is made in commutation of regular monthly payments, the character of the payment remains unchanged. The lump sum payment would be merely an advance of future monthly payments. Accordingly, on this basis a lump sum would be considered to be assessable under section 27H of ITAA 1936.
In your case, the purpose of the policy is to provide a monthly payment to you, the beneficiary of your mother's accident insurance policy for the whole of your life. It is paid on a monthly basis and has the character of an annuity. The payment is assessable income.