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Edited version of private advice
Authorisation Number: 1051531668768
Date of advice: 24 June 2019
Ruling
Subject: Foreign life policy
Question
Are the amounts you will receive from your foreign life insurance policy exempt from income tax in Australia?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2018
The scheme commenced on:
1 July 2017
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You had a life policy with a company in Country Y.
In XXX 2017 you received the following payments X : XXXX and X : XXX .
You have held the policy 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.
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 have received bonus payments from your policy.
You held this policy for more than 10 years.
Therefore, the payments you received are not assessable under section 26AH of the ITAA 1936.
You are, therefore, not required to include the payments received from your life policy in your Australian income tax return.
No CGT arises from the payments.