Private ruling: Assessability of income from foreign life policies
Published: October 2014
Ruling period: Year ended 30 June 2015.
Date scheme commenced: 1 July 2014.

Ruling: Question and answer | Are the amounts you received from your two foreign life insurance policies exempt from income tax in Australia? | Yes.

Relevant facts and circumstances: You immigrated to Australia from Country X more than 10 years ago. When you left Country X, you had two paid up life insurance policies. Policy 1 was an endowment which has now matured. Policy 2 was a whole of life policy which you have now cashed out. No further payments were made to the policies after you left Country X and you have not received any payments from them other than the current pay outs.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 25. | Income Tax Assessment Act 1936 Section 26AH. | Income Tax Assessment Act 1936 Section 6-5. | Income Tax Assessment Act 1936 Section 6-10.

Reasons for decision: Summary: Division 6 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what amounts are included in the taxpayer's assessable income. It provides that the following amounts are included: • income according to ordinary concepts; that is, ordinary income (section 6-5 of the ITAA 1997), or • an amount which is included by a specific provision about assessable income; that is, statutory income (section 6-10 of the ITAA 1997). Taxation Ruling IT 2504 - income tax: deductibility of interest on borrowed funds - life assurance policies provides the Commissioner's views on bonuses received from life insurance policies. It states at paragraph 2: Bonuses received on a policy of life assurance are not income according to ordinary concepts and therefore do not constitute assessable income under subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA 1936). In your case, the bonuses will not be ordinary income they will only be included in your assessable income if it is statutory income. Section 26AH of the ITAA 1936 includes in assessable income certain bonuses received under short term life insurance policies. You received final bonuses on maturity of Policy 1 and the cashing out of Policy 2. The final bonuses will be considered to be a reversionary bonus. Section 26AH of the ITAA 1936 provides for the taxation of certain reversionary bonuses received under a relevant life assurance policy (an eligible policy) during a specified period (the eligible period). Taxation Ruling IT 2346 - income tax: bonuses paid on certain life assurance policies - section 26AH - interpretation and operation discusses the application of section 26AH of the ITAA 1936 to short-term life assurance policies. Bonuses received under life insurance policies are not assessable under section 26AH of the ITAA 1936 if the policy has been held for a minimum of 4 or 10 years, depending on whether the date of commencement of risk is before or after 27 August 1982. In your case, you received bonuses from Policy 1 and Policy 2 when Policy 1 matured and when Policy 2 was cashed out. You held these policies for more than 10 years. Therefore, the bonuses you received are not assessable under section 26AH of the ITAA 1936. You are therefore not required to include the bonuses received from either Policy 1 or Policy 2 in your Australian income tax return.