Private ruling: Lump sum
Date of advice: 9 February 2026
Published: 30 March 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 11 August 19XX

Ruling: Q1: Is the amount received from the expiry of the Open-Ended Lifestyle Protection Plan (The Plan) taxable income or treated as a capital gain? | A1: No. The amount received on the expiry of The Plan is not considered assessable income as it is a reversionary bonus. Due to The Plan being purchased prior to 20 September 1985 there is no capital gains tax event.

Relevant facts and circumstances: The Plan purchased with Company A is jointly held in the names of Client A and Client B. The Plan commenced on DDMMYYYY for the amount of $XX,XXX. The Plan has a benefit expiry date of DDMMYYYY. The surrender value of The Plan as of DDMMYYYY would have been $XX,XXX. The estimated surrender value of The Plan is estimated as of DDMMYYYY will be $XX,XXX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8 - 1 | Income Tax assessment Act 1997 section 6-5 | Income tax assessment Act 1997 section 6-10 | Income tax assessment Act 1997 section 15-75 | Income Tax Assessment Act 1997 section 104.25 | Income tax assessment Act 1936 section 26AH

Reasons for decision: Summary: Section 6-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income consists of both ordinary income and statutory income. However, an amount of ordinary or statutory income will not be assessable income if the amount is made exempt or is otherwise excluded from assessable income. The proceeds received at the expiry of The Plan are classed as a reversionary bonus. Section 26AH (2) of the ITAA 1936 states that if a reversionary bonus is received after 10 years from commencement of a life insurance policy, that the bonus received is not assessable. A bonus on a life insurance policy is an amount that is paid in addition to the sum insured, and that a reversionary bonus is a bonus received on surrender or maturity of a life policy. This is a key issue as section 15-75 of the ITAA 1997 provides that a taxpayer's assessable income includes any amount received as or by way of bonus on a life insurance policy, other than a reversionary bonus. A reversionary bonus is a bonus containing a capital and investment component and is paid only on termination of the policy ((12 CTBR (NS) 189 Case 34; Case Q74 (1965) 15 TBRD 346). While an estimate of the value of the accrued reversionary bonus may be made each year, it does not accrue to the credit of the policy owner/s at that time. Therefore, the policyholder does not become entitled to the bonus or receive it until the policy is terminated. Whether the amount withdrawn is taxable will depend on whether the payment is received by way of bonus on a life insurance policy, other than a reversionary bonus, or whether it is received on surrender or maturity of the policy (a reversionary bonus). Therefore, as you have held The Plan for over 10 years, the reversionary bonus received from the expiry of the policy is not assessable income for income tax purposes under Section 26AH (2) of the ITAA 1936. The Capital Gains Tax (CGT) provisions are relevant to the interest in The Plan if acquired on or after 20 September 1985 (subsection 104-10(5) of the ITAA 1997). In your case, as you are a joint beneficial owner of The Plan and the interest was acquired prior to 20 September 1985, any capital gain made on the maturity is ignored. Consequently, the proceeds from The Plan are not included in your assessable income under subsection 6-10(4) of the ITAA 1997.