Private ruling: Investment bond and linked life assurance policy
Date of advice: 28 October 2021
Published: January 2022
Ruling period: 30 June 20XX | 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: If you surrender the investment bond, will the proceeds be non-assessable income under section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936), as it has been held for more than ten years? | A1: Yes. The investment bond has a death benefit component and is therefore an eligible policy for the purposes of section 26AH of the ITAA 1936. As the surrender of the bond will occur after it has been held for over ten years, no amount will be assessable under section 26AH of the ITAA 1936. | Q2: If you surrender the investment bond, will any capital gain be disregarded under section 118-300 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes. The investment bond has a death benefit component and is therefore a policy of insurance on the life of an individual for the purposes of section 118-300 of the ITAA 1997. As you acquired your interest in the policy for no consideration, any capital gain you make on the surrender of the bond will be disregarded.

Relevant facts and circumstances: You are an Australian resident for tax purposes. A relative of yours, a foreign resident, purchased an investment bond (the bond) over XX years ago. The bond is unit linked and has a death benefit component (the policy). The lives insured under the policy at the date of commencement were you and two other relatives. Your relative passed away and the bond passed to you and another relative for no consideration. The value of the bond has increased over time. You have made no withdrawals from the bond.

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