Edited version of private advice

Authorisation Number: 1051985535756

Date of advice: 26 May 2022

Ruling

Subject: Life assurance policy - reversionary bonuses

Question

Are any payments you receive on redemption of the Policy assessable?

Answer

No.

The date of risk of commencement for the 10-year period was reset to the date the last premium was paid, being Date 1, with the 10-year period ending on Date 2.

The payments you will receive in relation to redeeming the Policy after Date 2 will not be income according to the ordinary concepts and do not constitute assessable income under section 26AH of the ITAA 1936, or sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Additionally, section 118-300 of the ITAA 1997 enables any capital gain or capital loss made by a beneficial owner of a policy to be ignored for capital gains tax purposes.

Accordingly, the amounts you receive from redeeming the Policy during the ruling period more than 10 years from Date 1 will not be assessable.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commences on:

I July 20XX

Relevant facts and circumstances

You, being Person A and Person B, purchased an assurance bond with Company A, with a policy (the Policy) being issued by a non-resident insurance provider while you were residing overseas.

The Policy:

•         is a life assurance policy

•         provides for a payment of capital in the event of life and a payment of capital in the case of death

•         allows regular withdrawals

•         provides that all growth in the funds will be paid as reversionary bonuses.

During the income year in which you obtained the Policy you made several contributions to the Policy, with the last contribution being made on Date 1, which was more than 25% higher than the previous contribution.

No additional contributions have been made, or will be made, in relation to the Policy.

You became residents of Australia for taxation purposes after you obtained the Policy.

You are the original beneficial owners, and are the sole persons insured under the Policy.

There have been no withdrawals from the Policy during your ownership period of the Policy up to this point.

No bonuses have been paid in relation to the Policy up to this point.

You will not redeem or surrender the Policy within the 10 years from the date of commencement of risk.

You will redeem the Policy during the ruling period after the date the 10 years after the commencement of risk has passed.

You will receive a distribution of a reversionary bonus in no more than two payments in relation to the Policy after the Policy is redeemed.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 26AH

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 15-75

Income Tax Assessment Act 1997 Section 118-300