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Edited version of your written advice
Authorisation Number: 1012912212703
Date of advice: 16 November 2015
Ruling
Subject: Assessability of a foreign life policy lump sum
Question and answer
Will any part of the foreign endowment assurance policy proceeds paid to you on maturity be included in your assessable income?
No.
This ruling applies for the following period:
Year ended 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You are an Australian resident for taxation purposes.
You took out a foreign 'endowment assurance' policy over twenty years ago.
Your life was insured under the policy.
The policy matured in the income year ended 30 June 2016.
Bonuses were accumulated in the fund and paid on maturity.
A 'top-up' payment was also paid on maturity.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 26AH
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 15-75
Reasons for decision
The assessable income of a resident taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year.
Receipt of a lump sum payment from a life policy may give rise to a capital gain. However, under section 118-300 of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain made under a life insurance policy is disregarded and is not included in assessable income.
Section 15-75 of the ITAA 1997 provides that the assessable income of a taxpayer includes any amount received as or by way of a bonus on a life insurance policy, other than a reversionary bonus.
Reversionary bonuses are those paid on maturity, forfeiture or surrender of a life insurance policy and may be assessable under section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936).
In your case, you received various bonuses and a top-up payment on maturity of your policy and all these amounts are considered to be reversionary bonuses.
Section 26AH of the ITAA 1936 provides that reversionary bonuses received after ten years from the commencement date of a life insurance policy are not assessable.
Therefore, as you held your life assurance policy for over ten years, the reversionary bonuses received on maturity of the policy are not assessable income for income tax purposes under Section 26AH of the ITAA 1936.