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Edited version of private advice
Authorisation Number: 1051660161256
Date of advice: 27 April 2020
Ruling
Subject: Life insurance payment
Question 1
Is the amount received from the termination of a life insurance policy included in your assessable income?
Answer
No. Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Lump sum proceeds received from a life assurance policy are not income according to ordinary concepts as they do not have the characteristics of ordinary income. Lump sum payments are generally capital in nature.
Question 2
Can a capital gain made from the termination of the life insurance policy be disregarded?
Answer
Yes. Section 118-300 of the ITAA 1997 excludes from the application of the Capital Gains Tax (CGT) provisions certain capital gains or capital losses relating to the taxpayers interests under insurance policies, in certain circumstances.
The CGT exemption applies to capital gains or losses from a CGT event relating to rights under life insurance policies or annuity instruments, if the taxpayer was the original beneficial owner of the policy or instrument.
As you were the owner of the policy, any capital gain or loss resulting from the maturity of the policy is disregarded under Item 3 of section 118-300 of the ITAA 1997.
This ruling applies for the following period:
Year ended 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
You started a life insurance policy on mid 19XX.
Premiums are paid every few months.
Most recent premium was $XXX.
You are the insured person and plan owner.
Policy was terminated more than ten years after the start of the policy.
You terminated the policy early 20XX.
An amount was paid to you mid 20XX.
No bonus amounts are provided or shown on the payment advice to you.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5(2)
Income Tax Assessment Act 1997 section 118-300