Private ruling: Assessability of Life Insurance and Superannuation Policy Closure Payouts.
Published: September 2013
Ruling period: Year ended 30 June 2013.
Date scheme commenced: 1 July 2012

Ruling: Q1: Are any of the payout amounts received from closing the Life Insurance policy assessable income for income tax purposes? | A1: No. | Q2: Are any of the payout amounts received from closing the Superannuation policy assessable income for income tax purposes? | A2: No. | Q3: Are you required to lodge an income tax return? | A3: No.

Relevant facts and circumstances: 1. You are not an Australian citizen. 2. You resided in Australia for a short period over 10 years ago. 3. Over 10 years ago you invested an amount in a Life Insurance Bond with your child named as the insurance beneficiary. 4. You recently closed the Life Insurance Bond account and received the accounts proceeds. 5. Over 10 years ago you invested an amount in a Superannuation account. 6. You recently closed the Superannuation account and received the accounts proceeds. 7. You received a PAYG payment summary in regards to the proceeds received from the closure of your Superannuation account indicating a taxed element and a tax free component. 8. You have not received any other income from Australia. 9. You were over 60 years of age when you received the payout amounts.

Relevant legislative provisions: Section 26AH of the Income Tax Assessment Act 1936 | Division 301 of the Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Assessability of life insurance policy closure payout: Section 6-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income consists of both ordinary income and statutory income. However, an amount of ordinary or statutory income will not be assessable income if the amount is made exempt or is otherwise excluded from assessable income. The proceeds received from the closure of the life insurance policy are classed as a reversionary bonus. A reversionary bonus paid under a short term life policy on maturity, forfeiture or surrendered taken out after 28 August 1982 is subject to special tax treatment if the risk commenced after 7 December 1983 under Section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936). Section 26AH(2) of the ITAA 1936 states that if a reversionary bonus is received after 10 years from commencement of a life insurance policy, that the bonus received is not assessable. Therefore, as you held the life insurance policy for over 10 years, the reversionary bonus received from the closure of the policy is not assessable income for income tax purposes under Section 26AH(2) of the ITAA 1936. | Detailed Reasoning - Assessability of superannuation policy closure payout: Part 3-30 of the ITAA 1997 states that a superannuation benefit whether a lump sum or income stream paid to person who is aged 60 or over is not assessable income and not exempt income where the benefit has been subject to tax in the fund (an element taxed in the fund). A superannuation benefit containing an amount that has not been subject to tax in the fund (an element untaxed in the fund) is subject to tax, but a person aged 60 or over is taxed at a lower rate. At the time of the policy closure you were over 60. You were also provided with a Lump Sum Benefit Payment Summary on the closure of your policy. The Payment Summary had a taxed element, no untaxed element and a tax free component. Therefore, as you were over 60 years of age at the time the benefit was paid and the benefit paid did not contain any untaxed elements, then amount received from the closure of the superannuation policy is not assessable income for income tax purposes under Part 3-30 of the ITAA 1997. | Detailed Reasoning - Do you have to lodge an income tax return: As you have not received any assessable Australian sourced income for the 2013 financial you will not be required to lodge an Australian income tax return.