Private ruling: Assessable income - beneficiary - foreign life insurance
Date of advice: 19 October 2017
Published: March 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the lump sum payment received on maturity of your relative’s overseas life insurance policy assessable in Australia? | A1: No

Relevant facts and circumstances: You are a resident of Australia for tax purposes. Your relative took out a life insurance policy in an overseas country in the 1980’s. You are the sole beneficiary of this life insurance policy. The policy matured in July 20XX and as a result you received a lump sum payment in August of the same year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5, | Income Tax Assessment Act 1997 Section 6-10, | Income Tax Assessment Act 1936 Section 26AH, | Income Tax Assessment Act 1936 Section 99B, | Income Tax Assessment Act 1936 Subsection 99B(1) and | Income Tax Assessment Act 1936 Paragraph 99B(2)(b).

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and Section 6-10 of the ITAA 1997 state that assessable income includes ordinary income and statutory income from all sources, whether in or out of Australia. Ordinary income is income according to ordinary concepts. A lump sum payment received on maturity of a life insurance policy is a distribution from a non-resident trust. Subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936) states that where a resident beneficiary receives a distribution from a non-resident trust, the amount they receive is to be included in their assessable income. However Paragraph 99B(2)(b) of the ITAA 1936 states that an amount is excluded if it is not normally assessable to a resident taxpayer. Taxation Ruling IT 2504 discusses the taxation consequences of receiving bonuses and lump sum payments from life insurance policies. Paragraph 2 of TR IT 2504 states that bonuses received on a life insurance policy are not income according to ordinary concepts. Section 26AH of the ITAA 1936 states that a bonus received on surrender or maturity of a life insurance policy held for less than ten years from commencement of the policy is assessable as statutory income. The lump sum payment you received as a result of the maturation of your relative’s foreign life insurance policy is considered a distribution to a resident from a non-resident trust. As stated in Paragraph 2 of TR IT 2504, this payment is not assessable as ordinary income. Furthermore, the payment is not assessable as statutory income as the life insurance policy was held for longer than ten years. As the lump sum payment received would not be assessable income of a resident tax payer, Paragraph 99B(2)(b) of the ITAA 1936 will therefore apply to exclude the amount from your assessable income for the 2016-17 financial year.

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