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Edited version of private ruling
Authorisation Number: 1011723316013
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Ruling
Subject: Life insurance payout
Question
Is the benefit received on your Whole of Life insurance policy assessable income?
No.
This ruling applies for the following periods
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You had a Whole of Life Insurance policy.
The policy commenced in 1982.
You surrendered the policy in the recent year.
You have not increased your premiums at any stage.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-300
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Subsection 6-15(1)
Income Tax Assessment Act 1936 Section 26AH
Reasons for decision
An Australian residents assessable income includes ordinary income derived directly or indirectly from all sources whether in or out of Australia.
Ordinary income has generally been held to include three categories:
· income from rendering personal services
· income from property, and
· income from carrying on a business.
Other characteristics of income include receipts that:
· are earned
· are expected
· are relied upon, and
· have an element of periodicity, recurrence or regularity.
A payment from a life insurance policy does not relate to services performed and does not have an element of regularity.
Although the payment can be said to be expected and relied upon, this expectation arises from the investment in insurance, rather than from a relationship with personal services performed.
Under sub section 26AH of the Income Tax Assessment Act (ITAA) 1936 a gain received from an eligible plan during the eligible period will form part of the owner's assessable income.
Plans started on or prior to 27 August 1982 are not eligible plans and are not assessable.
Under sub-section 26AH(13) of the ITAA, the eligible period in respect of a policy recommences at the start of any assurance year in which premiums payable exceed by more than 25% the amount of the premiums payable under the policy in relation to the immediately preceding assurance year.
In your situation, your plan started in 1982, and you did not increase your premiums at any stage. Accordingly, any payment received by you, from the life insurance policy is not assessable income.