Private ruling: Capital gains tax
Published: December 2011
Ruling period: 1 July 2005 to 30 June 2006
Date scheme commenced: 1 July 2005

Ruling: Q1: Is the gain made on the redemption of your bond exempt from capital gains tax (CGT) under subdivision 118-D of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You are a complying superannuation fund. You lodged your income tax return for the 2006 income year disclosing capital gains from the redemption of an investment. An assessment notice subsequently issued. The entity through which you have the investment is registered under the Life Insurance Act 1995 for this purpose. You have provided documentation which shows the investment was purchased after September 1985. These documents also provide the following information; The investments are investment linked life insurance policies issued to the trustees of complying superannuation funds on the lives of the super funds members. Investment of the fund is in the form of a lump sum payment. Additional deposits may be made at any time provided at least on member of the super fund (being one of the lives insured) is alive. The 'lives insured' means the members of the superannuation fund for the time being and from time to time. The policy includes a death benefit which is payable to the trustee of the super fund in the event of the death of the last member (being one of the lives insured) of the super fund. Withdrawals from the investment can be made at any time. There are minimum withdrawal and investment balance requirements. The policy is a non-participating policy in the funds Statutory Fund No. 3. An amount of death cover is payable in the event of the death of the last member of the superannuation fund. You believe the previous tax agent has not taken into account the tax paid by the fund manager when calculating the capital gain that was reported in the 2006 income tax return. You request a ruling to confirm this.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 118-D | Income Tax Assessment Act 1997 section 118-300 | Income Tax Assessment Act 1997 section 118-350 | Income Tax Assessment Act 1997 section 995(1) | Income Tax Assessment Act 1936 section 6(1) | Income Tax Assessment Act 1936 section 170

Reasons for decision: Summary: The gain on the redemption of the policy is exempt from capital gains. | Detailed Reasoning - Detailed reasoning: Section 118-300 of the ITAA 1997 excludes from the application of the CGT provisions certain capital gains or capital losses relating to interests under insurance policies, in specified circumstances. Section 118-300(1) of the ITAA 1997 (item 5) provides that the CGT exemption applies to capital gains or losses from a CGT event relating a policy of insurance on the life of an individual or an annuity investment if the taxpayer is the trustee of a complying superannuation entity for the income year in which the CGT event happened. The CGT exemption for general and life insurance only applies in relation to gains and losses arising from CGT events specified in section 118-300(2) of the ITA 1997. CGT event A1, Disposal of a CGT asset, is a specified event. The expression "policy of insurance on the life of an individual" includes, but is not limited to, life insurance policies to the extent they are within the common law meaning of that term (Taxation Determination TD 2007/4). It includes other policies to the extent that they provide for a sum of money to be paid if an event happens that results in the death of an individual. It also includes an insurance policy to the extent that it provides for the payment of a "terminal illness benefit". | Detailed Reasoning - Application to your circumstances: You are a complying superannuation fund. The investment is a life insurance policy issued by a company registered under the Life Insurance Act 1995 . The policy is a 'policy of insurance on the life of an individual'. The individuals whose lives are insured under the policy are the beneficiaries of the complying superannuation fund. The investments therefore meet the definition of a life insurance policy for the purposes of section 118-300 of the ITAA 1997. As you are a complying superannuation fund the gains on disposal or redemption of units in the life assurance policy are not taxable under the CGT provisions and realised losses cannot be used to offset other capital gains. Under section 170 of the Income Tax Assessment Act 1936 (ITAA 1936), the Commissioner may amend an assessment by making such alterations or additions as he considers necessary. The time limit for a superannuation fund to amend an income tax return is four years from the day that the notice of assessment is given by the Commissioner. An amendment request will therefore be within time if lodged on or before xx November 2012.

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