Private ruling: Foreign life policy and foreign investment bond
Date of advice: 10 October 2023
Published: 27 November 2023
Ruling period: 30 June XXXX
Date scheme commenced: 11 May 2022

Ruling: Q1: Is any capital gain (or capital loss) made by the Estate from the receipt of a death benefit lump sum disregarded under section 118-300 of the Income Tax Assessment Act 1997? | A1: Yes. As the Bond incorporates a life assurance policy, it is evident that it 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. | Q2: Will the Estate be assessed in respect of any reversionary bonus received under Section 26AH of the Income Tax Assessment Act (ITAA 1936) ? | A2: No. Certain bonuses received on surrender or maturity of a life insurance/assurance policy may be included in assessable income under section 26AH of the ITAA 1936. However, section 26AH of the ITAA 1936 operates so that reversionary bonuses received more than 10 years from the date of commencement of a life assurance policy are excluded from assessable income.

Relevant facts and circumstances: The deceased opened a Bond on advice while he was a resident of Country A on XXXX with an initial opening amount of XX. No further amounts were contributed or withdrawn from the Bond during the life of the policy holder, being the deceased. The deceased became an Australian resident for tax purposes on XXXX. At that time the actuarial value of the Bond was XX. The deceased died on XXXX. The Bond is an investment linked life assurance policy which includes a cash facility. The deceased is the sole beneficiary under the life assurance policy. The deceased's will gave the Bond to his eldest daughter. The deceased's daughter is not a tax resident of Australia and has no connection with Australia. The features of the Bond include the following: • It is a whole of life assurance policy which also provides a long-term investment vehicle. • Allows the investment to grow over the medium and long term through a broad range of investment types. • Allows withdrawals on a regular or one-off basis including full withdrawal. • On death, your personal representatives will receive 101% of the encashment value of the Bond. On XXXX the lump sum in the amount of XX was paid to the deceased's estate.

Relevant legislative provisions: Income Tax Assessment Act 1936 section6 | Income Tax Assessment Act 1936 section26AH | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 118-300 | Income Tax Assessment Act 1997 section 995-1