Private ruling: Assessable income -life insurance policy bonus
Date of advice: 19 May 2022
Published: August 2022
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 2021

Ruling: Q1: Is the bonus you received from your life insurance policy included in your assessable income? | A1: No. Bonuses received on a policy of life assurance are capital in nature and not considered ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Reversionary bonuses received more than ten years from the date of commencement of risk also do not meet the criteria for assessability under section 26AH of the Income Tax Assessment Act 1936 . These bonus amounts are therefore not included as assessable income. Section 118-300 of the ITAA 1997 allows a capital gain to be disregarded where the capital gains tax (CGT) event happens in relation to a life insurance policy of which you are the original owner. Therefore, no CGT consequences will arise. In summary, the bonus is not included in your assessable income as it is not ordinary income or statutory income.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You took out an endowment policy (policy) with a foreign life insurance company more than XX years ago. You were the original owner of the policy. You paid the same annual policy amount each year. The policy matured and you received a lump sum payment (including a bonus amount).

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5. | Income Tax Assessment Act 1936 section 26AH. | Income Tax Assessment Act 1997 section 118-300.