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Edited version of private advice
Authorisation Number: 1052229283378
Date of advice: 18 March 2024
Ruling
Subject: Foreign life insurance policy
Question 1
Will you be assessed under section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936) for any reversionary bonus received, when your life assurance policy was surrendered?
Answer
No. Certain bonuses received on surrender or maturity of a life insurance/assurance policy may be included in assessable income under section 26AH of the ITAA 1936. However, section 26AH of the ITAA 1936 operates so that reversionary bonuses received more than 10 years from the date of commencement of a life assurance policy are excluded from assessable income.
Question 2
Is any capital gain (or Capital Loss) made by you from the withdrawal of the amounts of initial contributed capital of your life insurance policy, which was immediately repaid a relative's Estate, disregarded under section 118-300 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. Any capital gain or loss resulting from the total cash in value, including the initial contributed capital made to you on the surrender of your life assurance policy is disregarded as it was a policy of insurance on the life of an individual.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
XX XX XXXX
Relevant facts and circumstances
A Deed of Gift was made by the donor to a Trust.
A loan agreement was made on the following day between the donor and the Trust with repayments by instalments at the end of each period of 12 months.
The donor and the Trust purchased a foreign life insurance policy, which included a Bond on your life. The commencement date was XX XX XXXX.
The life insurance policy was made up of 20 policies. The total premium of your policy purchased units in a Fund 'Life with Profits' with an investment allocation percentage.
Additional top up investments were made to your policy.
The donor passed away in 20XX.
The foreign life insurance company confirmed your notification of assignment was complete making you the owner of the policy.
The foreign life insurance company confirmed you had fully surrendered your policies after them holding them for more than 10 years.
You subsequently received the cash in value of the policy and on the same date paid the capital value of your policy to the donor's Estate.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 26AH
Income Tax Assessment Act 1997 section 118-300