Private ruling: Lump sum
Date of advice: 28 January 2026
Published: 23 March 2026
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Is the lump sum payment you will receive assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. The payment is one-off and bears none of the characteristics of ordinary income as it lacks any element of periodicity, recurrence or regularity. Therefore, the lump sum payment is capital in nature and will not be assessable as ordinary income. Accordingly, the compensation payment is not ordinary income and is therefore not assessable under section 6-5 of the ITAA 1997. | Q2: Is the payment considered a capital gain? | A2: Yes. Under subsection 104-25(1) of the ITAA 1997, CGT event C2 occurs when your ownership of an intangible CGT asset ends, including where the asset is released, discharged, redeemed, cancelled, abandoned, surrendered or forfeited. A life insurance policy is treated as an intangible CGT asset because it represents contractual rights (a chose-in-action). When the insurer pays the lump-sum benefit and the policy is discharged, those contractual rights come to an end, meaning CGT event C2 happens at that time. | Q3: Will the capital gain you make upon receiving the payment be disregarded under subsection 104-25(5) of the ITAA 1997? | A3: Yes. Capital gains are included as assessable income under section 102-5 of the ITAA 1997. Paragraph 108-5(1)(b) of the ITAA 1997 specifically includes a legal or equitable right within the definition of a capital gains tax (CGT) asset. The policy was acquired before 20 September 1985, any capital gain or capital loss from CGT event C2 is disregarded under paragraph 104-25(5)(a), which provides that gains and losses from pre-CGT assets are disregarded.

Relevant facts and circumstances: On DD MM YYYY, you were born in Country A. On DD MM YYYY, you took out the policy in Country A. The policy type is whole of life. You paid regular premiums for the policy. There were no changes to the premiums charged each year. On DD MM YYYY, you travelled to Australia to work. On DD MM YYYY, you permanently moved to Australia. Since DD MM YYYY, you have paid no taxes in Country A. On DD MM YYYY, you became a citizen of Australia. On DD MM YYYY, you received a letter stating that as an overseas resident of Country A, provided the sufficient assets conditions are met, you will receive a cash payment that will, at the effective date, be a minimum of XX% higher than your current policy's surrender value, capped at your current policy's death benefit. On DD MM YYYY, you received a confirmation letter that the policy was cancelled, and you were going to receive a lump sum cash payment of approximately $XX. You expect to receive the lump sum prior to the end of the income year ending 30 June 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section104-25 | Income Tax Assessment Act 1997 section108-5