ATO ID 2003/482: Friendly Society Funeral Policy - funeral benefits for deceased spouse
Date of decision: 8 April 2003
Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Business line: Public Groups and International

Issue
Can the Tax Office authorise a friendly society to pay out a surviving spouse's benefits from their 'funeral policy', as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), for the funeral expenses of their deceased spouse?

Decision
No. The Tax Office has no authority to authorise a friendly society to pay out the benefits of a funeral policy before the death of the insured person.

Facts
A married couple, John and Betty, each took out a funeral policy from a friendly society. John was the insured person under his policy and Betty the insured person under hers. The friendly society's benefit fund rules have no provision for payment of benefits under a funeral policy other than on the death of the insured person. Both policies had balances of $1,000 at the time of John's death. John's funeral expenses totalled $9,000 and benefits of $1,000 were paid from his policy. Betty requested that the friendly society also apply her policy benefits for John's funeral expenses. The friendly society advised that this might be possible if they have approval from the Tax Office.

Reasons for decision
Summary: Benefit funds of friendly societies are constituted by rules. The rules constitute the terms of the contract between the society and individual policy holders. If the benefit fund rules have no provision for payment of benefits under a funeral policy other than on the death of the insured person, the Tax Office has no authority to authorise a friendly society to refund or pay out the amount invested in a funeral policy before the death of the insured person.

Legislative references: Income Tax Assessment Act 1997 subsection 995-1(1)
Subject references: Friendly society Friendly society bonds Funeral bonds Insurance & insurance industry Life insurance policies