Private ruling: Assessability of lump sum payment received on maturity of mortgage endowment policy
Date of advice: 24 October 2019
Published: January 2020
Ruling period: Income year ending 30 June 2020.
Date scheme commenced: 1 July 2019.

Ruling: Q1: Is the lump sum payment you will receive from an overseas mortgage endowment policy assessable in Australia? | A1: No. Based on the information provided the amount you will receive on the maturity of your mortgage endowment policy will not be assessable in Australia under either the income tax or capital gains tax provisions. | Q2: Will you be taxed on the transfer of your share of the amount paid out from the mature mortgage endowment policy to your child? | A2: No. There is no gifting tax in Australia. Therefore, the transfer of capital from you to your child is not taxable in accordance with the income tax or capital gains tax provisions. Note: While the transfer of capital from you to your child is not taxable, if your child is under 18 years of age, the tax on the earnings from this money may be at a higher rate. This ruling does not consider that taxation implications for on their receipt of the transferred money.

Relevant facts and circumstances: You and your former spouse (collectively referred to as 'you') took out a mortgage endowment policy (the Policy) which aimed to pay a target amount at the end of the payment term, and possibly provide an extra cash value. The target end date of the Policy was in 20XX. The Policy required you to pay regular premiums throughout the life of the Policy. You and your family migrated to Australia in 20XX and became Australian citizens after a number of years. You were divorced and a court order was issued by the Family Court of Australia in 20XX which outlined that you would each pay the monthly repayments of the Policy for your child until it matured, with the Policy to be paid upon maturation to your child in a manner agreed between you. You are not assessable on any gains made from the Policy in the country in which the Policy is held. The Policy has been held for a period of more than 10 years and had been held by you until it matured. For the purposes of this ruling, you will transfer the cashed out money from the Policy into your child's bank account as outlined in the court order during the period covered by this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 6-5 | Income Tax Assessment Act 1997 - Section 6-10 | Income Tax Assessment Act 1997 - Section 6-15 | Income Tax Assessment Act 1997 - Section 102-20 | Income Tax Assessment Act 1997 - Section 118-300