Edited version of private advice

Authorisation Number: 1051929417026

Date of advice: 6 December 2021

Ruling

Subject: Foreign life policy

Question

Can you disregard the capital gain you made from the lump sum payment you received from the foreign life insurance policy under section 118-300 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. Although the receipt of a lump sum payment from a life insurance policy is not considered to be income according to ordinary concepts, receipt of the payment may give rise to a capital gain (or loss). However, section 118-300 of the ITAA 1997 provides that a capital gain made from a policy of insurance on the life of an individual is disregarded and is not included in assessable income if you are an entity that acquired the interest in the policy for no consideration. Any part of the payment that represents interest is included in assessable income, however.

This ruling applies for the following period:

Year ending 30 June 2022

The scheme commences on:

1 July 2021

Relevant facts and circumstances

You were nominated as a beneficiary of a foreign life insurance policy which was taken out by your former spouse over 10 years ago.

Your former spouse passed away and you received a lump sum payment from the life policy.

The payment included a small amount of interest calculated from the date of death until the payment date.

The payment did not include a bonus paid under the policy.

You acquired the interest in the policy for no cost.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 118-300