Private ruling: CGT - surrender of a life insurance policy
Date of advice: 15 May 2023
Published: 3 July 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will any capital gain arising from the surrender of your rights under the Bond for which you are to receive from the discretionary trust, be disregarded under section 118-300 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The Bond is a policy of insurance on the life of an individual. Although the receipt of a lump sum payment from a life insurance policy may give rise to a capital gain, section 118-300 of the ITAA 1997 provides that a capital gain made under a policy of insurance on the life of an individual is disregarded and is not included in assessable income.

Relevant facts and circumstances: The Bond was established in February 20XX in Country A by Person A who is the mother of Person B (the taxpayer). The Bond was established in part as a life insurance policy and as an investment instrument. The Bond had an initial plan value of XXX and insured the life of the taxpayer and his brother. The Bond allowed Person A to take monthly withdrawals of XXX. The Trust (Foreign Trust) was established at the same time as the Bond in 20XX. The Bond is held subject to the Foreign Trust. The Trustees of the Foreign Trust were Person A, the taxpayer and Person C. The taxpayer and his brother are named as beneficiaries of the Foreign Trust. Person A passed away in 20XX and in her Will assigned 50% of the Bond to the taxpayer and 50% to the taxpayer's brother who lives in the Country A. The taxpayer's brother "cashed in" his 50% interest in the Bond as part of the settlement of Person A's deceased estate. It is proposed that the Trustee will transfer its interest in rights under the Bond to the taxpayer for no consideration and the taxpayer will cash-in or dispose of the Bond to receive a lump sum payment. The taxpayer has not received any distributions from the Foreign Trust. As at 30 September 20XX the Bond had a plan value of XXX which included any one off withdrawals made.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-300