Private ruling: Foreign life policy
Date of advice: 12 April 2023
Published: 29 May 2023
Ruling period: Year ended 30 June 202X
Date scheme commenced: 1 July 202X

Ruling: Q1: Is the lump sum death benefit received from a foreign source insurance policy assessable income? | A1: No.

Relevant facts and circumstances: Your parent passed away in Country A. You received a lump sum death claim payment as a beneficiary. A death claim payment statement stated you received the following payments: • Post TEFRA basis amount • Post TEFRA interest amount.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1936 section 26AH | Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1936 subsection 99B(1) | Income Tax Assessment Act 1936 paragraph 99B(2)(b)

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and section 6-10 of the ITAA 1997 provide that your assessable income includes ordinary income and statutory income from all sources, whether in or out of Australia. Ordinary income is income according to ordinary concepts. A lump sum payment received on maturity of a foreign life insurance policy is a distribution from a non-resident trust. Subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where a resident beneficiary receives a distribution from a non-resident trust the amount they receive is included in their assessable income. However, paragraph 99B(2)(b) of the ITAA 1936 states that an amount is excluded if it is not normally assessable to a resident taxpayer. Taxation Ruling IT 2504 discusses the taxation consequences of receiving bonuses and lump sum payments from life insurance policies. Paragraph 2 of TR IT 2504 states that bonuses received on a life insurance policy are not income according to ordinary concepts. Section 26AH of the ITAA 1936 states that a bonus received on surrender or maturity of a life insurance policy held for less than ten years from commencement of the policy is assessable as statutory income. The lump sum payment you received on the maturity of the life insurance policy is considered a distribution to a resident from a non-resident trust. In this case, the payment is not assessable as statutory income as the life insurance policy was held for longer than ten years. As the lump sum payment would not be assessable income of a resident taxpayer, paragraph 99B(2)(b) of the ITAA 1936 will apply and the payment will not be assessable under section 99B of the ITAA 1936. As the lump sum payment is not ordinary or statutory income it is not included in your assessable income. Any part of the payment that represents interest ordinary income and is included in your assessable income.