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Edited version of your written advice
Authorisation Number: 1051374891318
Date of advice: 21 May 2018
Ruling
Subject: Foreign life policy
Question
Are the amounts you will receive from your foreign life insurance policies exempt from income tax in Australia?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 201X
The scheme commenced on:
1 July 201X
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You have two Portfolio Bonds.
Recently, you partially cashed out one.
You have not made payments into the policies except for the initial investment.
You have held the policies for more than 10 years.
Relevant legislative provisions:
Income Tax Assessment Act 1936 Section 25.
Income Tax Assessment Act 1936 Section 26AH.
Income Tax Assessment Act 1936 Section 6-5.
Income Tax Assessment Act 1936 Section 6-10.
Reasons for decision
Division 6 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what amounts are included in the taxpayer's assessable income. It provides that the following amounts are included:
● income according to ordinary concepts; that is, ordinary income (section 6-5 of the ITAA 1997), or
● an amount which is included by a specific provision about assessable income; that is, statutory income (section 6-10 of the ITAA 1997).
Taxation Ruling IT 2504 - income tax: deductibility of interest on borrowed funds - life assurance policies provides the Commissioner's views on bonuses received from life insurance policies. It states at paragraph 2:
Bonuses received on a policy of life assurance are not income according to ordinary concepts and therefore do not constitute assessable income under subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
In your case, the bonuses will not be ordinary income, they will only be included in your assessable income if it is statutory income.
Section 26AH of the ITAA 1936 includes in assessable income certain bonuses received under short term life insurance policies.
You will receive a final bonus on the cashing out of your policies. The final bonus will be considered to be a reversionary bonus.
Section 26AH of the ITAA 1936 provides for the taxation of certain reversionary bonuses received under a relevant life assurance policy (an eligible policy) during a specified period (the eligible period).
Taxation Ruling IT 2346 - income tax: bonuses paid on certain life assurance policies - section 26AH - interpretation and operation discusses the application of section 26AH of the ITAA 1936 to short-term life assurance policies.
Bonuses received under life insurance policies are not assessable under section 26AH of the ITAA 1936 if the policy has been held for a minimum of 4 or 10 years, depending on whether the date of commencement of risk is before or after 27 August 1982.
In your case, you will receive bonuses from your policies when they are cashed out.
You held these policies for more than 10 years.
Therefore, the bonuses you receive are not assessable under section 26AH of the ITAA 1936.
You are, therefore, not required to include the bonuses received from cashing out your life policies in your Australian income tax return.