Private ruling: Surrender of foreign investment bond
Date of advice: 5 March 2019
Published: May 2019
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the reversionary bonus received from the surrender of your investment bond policy be included as ordinary income? | A1: No. As you surrendered the investment bond policy more than 10 years after the policy was purchased, the reversionary bonus you received as a result of surrendering the investment bond policy will not be included in your ordinary income. | Q2: Will any capital gain arising from the surrender of the investment bond be disregarded under Section 118-300 of the Income Tax Assessment Act 1997 ? | A2: Yes. As the investment bond policy will provide payment upon death and you were the original owner of the policy, any capital gain made from the surrender of the investment bond policy will be disregarded.

Relevant facts and circumstances: You are an Australian resident taxpayer. Your relative took out an investment bond and attached life insurance (investment bond policy). The investment bond policy was issued on your life. Under the investment bond policy, a payment would be made in the event of your death. This investment bond policy is sourced overseas. Its value reflects a variety of foreign listed investment funds and property. The investment bond policy was originally purchased in the year beginning 1 July 2006. The original policy was purchased in a trust with you and your relative acting as joint trustees. You became the sole trustee following the death of your relative. You surrendered the investment bond policy in the year beginning 1 July 2016. At the time you surrendered the investment bond, more than 10 years had expired since the commencement of the life insurance policy attached to the investment bond. Investment bond policy premiums did not increase by more than 25% in any one year.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 26AH | Income Tax Assessment Act 1997 section 118-300 | Income Tax Assessment Act 1997 section 995-1 | Life Insurance Act 1995 section 14