Edited version of private advice

Authorisation Number: 1052384086326

Date of advice: 09 May 2025

Ruling

Subject: Income tax - foreign investments

Question 1

Are interest earnings credited to your foreign trust fund while you are an Australian resident for tax purposes assessable income during the current income year?

Answer 1

No.

Question 2

Are bonuses credited to your foreign life assurance policy while you are an Australian resident for tax purposes assessable income during the current income year?

Answer 2

No.

This ruling applies for the following period:

For the income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You came from Country B to live in Australia for work during MM YYYY.

You are an Australian resident for tax purposes.

You have an interest in a foreign trust fund (Account number X) which earns yearly interest.

You have not received a distribution from the fund during the ruling period.

You also hold a Country B life assurance policy (X Policy number X).

The start date (or the 'date of commencement date of risk') of the policy was DDMMYYYY.

The policy receives an annual bonus.

The policy has not been redeemed nor reached maturity during the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 26AH

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 15-75

Reasons for decision

Question 1

Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of a resident taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business.

Further, section 99B of the Income Tax Assessment Act 1936 (ITAA 1936) deals with the receipt of trust amounts or distributions that have not previously been subject to tax in Australia. It applies where an Australian resident for tax purposes receives an amount from a foreign trust.

As you have not received a distribution from your foreign investment fund during the current income year, the interest earnings credited to the account are not assessable under either section 6-5 or section 99B of the ITAA 1936 in the ruling period.

Question 2

Bonuses received on a policy of life assurance are not income according to ordinary concepts and are therefore not assessable income for the purposes of section 6-5 of the ITAA 1997.

However, section 15-75 of the ITAA 1997 provides that a taxpayer's assessable income includes any amount received as or by way of bonus on a life insurance policy, other than a reversionary bonus. A reversionary bonus is a bonus received on surrender or maturity of a life policy.

Section 26AH of the ITAA 1936 operates to include certain reversionary bonuses from life assurance policies in assessable income if they would not otherwise be included. However, an amount will only be assessable where an eligible policy is redeemed within 10 years of the commencement date of the risk.

Further, Taxation Ruling IT 2346 Income Tax: bonuses paid on certain life assurance policies - section 26AH - interpretation and operation at paragraph 7 provides further explanation to the meaning of the word 'received':

Section 26AH primarily applies to amounts actually received by a taxpayer as or by way of a bonus under an eligible policy. However, subsection 26AH(4) operates, subject to subsection 26AH(5), to ensure that where an amount of bonus is dealt with on behalf of or at the direction of the taxpayer, he or she is taken to have received that amount. It is important to note, however, that the mere crediting of a bonus to a policy of life assurance is not to be taken as the receipt by the taxpayer of the bonus. In this regard, subsection 26AH(5) provides that subsection 26AH(4) does not apply to a bonus or similar amount that is applied to increase the surrender or maturity value of a life assurance policy.

In your case, you acquired the life assurance policy 6 years ago and the policy is not being redeemed within 10 years of the commencement date. Bonuses credited to the policy during the current income year are not yet considered to have been 'received'.

As per IT 2346, bonuses applied during the current income year which simply increase the surrender or maturity value of the policy are not assessable income under section 15-75 of the ITAA 1997 in the ruling period.