Private ruling: Foreign endowment policy
Date of advice: 21 September 2015
Published: September 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Is the lump sum payment (including bonuses) received on maturity of your foreign endowment policy assessable in Australia? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You hold a permanent resident visa. You are a resident of Australia for taxation purposes. Some time ago you took out an endowment policy in a foreign country of which the proceeds were payable on the maturity date. On commencement of the policy the set value and the maturation date were agreed upon. Each year you paid a premium towards the endowment policy. The policy has now matured and the funds were transferred to you in the recent year. The funds you received at maturity consisted of: • the guaranteed maturity amount • a reversionary bonus • a special maturity dividend • minus the automatic premium loan amount.

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

Reasons for decision: Summary: The assessable income of an Australian resident includes ordinary income and statutory income from all sources, whether inside or outside of Australia (section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). Ordinary income is income according to ordinary concepts. The lump sum value paid at maturity of the foreign endowment policy is not ordinary income. It does not have the characteristics of ordinary income. Statutory income is an amount that a provision of the ITAA 1997 or Income Tax Assessment Act 1936 (ITAA 1936) specifically provides for as assessable income. The lump sum received on maturity of your foreign endowment policy is not assessable as statutory income under section 10-5 of the ITAA 1997. Bonuses received on maturity of a life insurance policy held less than 10 years from the commencement of the policy are assessable under section 26AH of the ITAA 1936 as statutory income. However bonuses received more than 10 years from the commencement date of the policy do not fall within the provisions of section 26AH of ITAA 1936 and are not included as assessable income (paragraph 3 of IT 2504 Income tax: deductibility of interest on borrowed funds - life assurance policies ). You received the bonuses after a period of 10 years from the commencement date of the policy. Therefore the lump sum value and the bonuses received at the point of maturity are not included in your assessable income in Australia under provisions in the ITAA 1936 and ITAA 1997.