ATO ID 2003/1200: Insurance policy: refund of imputation credits
Date of decision: 22 December 2003
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
If a taxpayer receives income from a friendly society insurance bond, are they entitled to a refund of imputation credits under section 67-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. If a taxpayer receives income from a friendly society insurance bond, they are not entitled to a refund of imputation credits under section 67-25 of the ITAA 1997.

Facts
A taxpayer invested in a friendly society insurance bond and has held it for more than 10 years. The friendly society pays tax on the investment income received on the bond and, after holding the bond for more than 10 years, the taxpayer does not pay tax on the income they received from the bond as it is tax paid.

Reasons for decision
Summary: Taxpayers who are eligible for imputation credits on dividends paid on or after 1 July 2000 are entitled to a refund of excess imputation credits if the credits exceed their tax payable. Imputation credits may only be claimed on frankable dividends. Section 160APA of the Income Tax Assessment Act 1936 (ITAA 1936) defines 'frankable dividend' to include a dividend within the meaning of section 6 of the ITAA 1936. Subsection 6(1) of the ITAA 1936 definition of 'dividend' in paragraph (f) of the definition excludes a reversionary bonus on a policy of life assurance from the definition. Under subsection 26AH(6) of the ITAA 1936, reversionary bonuses received under a life assurance policy with a date of commencement of risk after 7 December 1983 are assessable only if the policy has been held for less than 10 years. Unlike annual bonuses, reversionary bonuses are paid on maturity, forfeiture or surrender of life assurance policies. The friendly society insurance bond is considered to be a life assurance policy and the income received on this policy is considered to be a reversionary bonus. As they are excluded from subsection 6(1) of the ITAA 1936 definition of dividends, reversionary bonuses are not eligible for imputation credits.

Legislative references: Income Tax Assessment Act 1997 section 67-25
Subject references: Friendly societies Friendly society bonds Imputation system Insurance & insurance industry Insurance bonds Life insurance policies Refund of imputation credits