Edited version of private advice

Authorisation Number: 1052240625783

Date of advice: 17 April 2024

Ruling

Subject: CGT insurance lump sum payout

Question

Is the capital gain made from receiving a payout from the life insurance policy on the life of an employee disregarded in accordance with subsection 118-300(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

The capital gain made when you received the payout from the life insurance policy on the life of an employee is disregarded as you are the original owner of the policy, in accordance with item 3 of the table in subsection 118-300(1) of the ITAA 1997.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You held a life insurance policy for one of your employees.

A life insurance policy is a capital gains asset. The ending of a life insurance policy is capital gains event C2.

The insurance policy was purchased as the employee was key personnel and necessary for your business operations, managing relationships with providers in overseas countries and organising arrangements with those providers for their services.

In the 20YY financial year you received a benefit payment representing settlement under this policy as your employee had passed away. No tax or stamp duty was due in relation to the payment.

The insurance premiums were paid by you from the time the insurance was taken out until the date of the benefit payment.

No deductions have been claimed for the premiums.

You are listed as the owner of the policy on the notice of settlement, and you are the original owner of the policy.

The proceeds received on payment of the benefit under the insurance policy will be reinvested into your business.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-300(1)