Private ruling: Taxation of payment on maturity of an endowment insurance policy
Published: March 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 01 July 2011

Ruling: Q1: Is the lump sum payment (including bonuses) to be received on maturity of your endowment policy assessable as income? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1936 section 26AH | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-10(2) | Income Tax Assessment Act 1997 section 118-300

Reasons for decision: Summary: The assessable income of an Australian resident includes ordinary income and statutory income from all sources. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts. Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property, and income from carrying on a business. Other characteristics of income that have evolved from case law included receipts that: o are earned o are expected o are relied upon, and o have an element of periodicity, recurrence or regularity. The lump sum assured amount received on maturity of a life assurance policy does not have the characteristics of ordinary income is therefore not ordinary income. Bonuses received on a life assurance policy are not income according to ordinary concepts (paragraph 2 of Taxation Ruling IT 2504). Your assessable income includes your statutory income from all sources under Section 6-10(4) of ITAA 1997. Bonuses received on surrender or maturity of a life policy can be considered to be statutory income and would be assessable income under section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936). Bonuses received on maturity of a life policy more than ten years from the commencement of the policy are not considered to be statutory income as they do not fall within the operation of section 26AH of the ITAA 1936 and are not included in assessable income (paragraph 3 of IT 2504). Where it is more than 10 years from the commencement of the policy or If the amount of premium paid has not increased by more than 25% in the last 10 years then the bonuses received on maturity of a life policy are not considered to be statutory income as they do not fall within the operation of section 26AH of the ITAA 1936 and are not included in assessable income (paragraph 3 of IT 2504). The lump sum proceeds of an endowment policy are capital and not assessable as income.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You hold an endowment insurance policy in your name which started over 10 years ago. You increased the premiums by more than 25% on one occasion over ten years ago. | The policy is an endowment policy (the proceeds of which are payable on survival to the maturity date stated in the policy or on prior death). | This policy is to mature in the near future. The lump sum payment will be paid to you being the beneficiary of the policy.