Private ruling: Life insurance maturation payment
Date of advice: 27 November 2017
Published: April 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the lump sum payment received upon maturity of your children’s savings plan life insurance policy assessable income? | A1: No.

Relevant facts and circumstances: You hold an insurance policy in your name which was started more than 10 years ago. Monthly payments were made to the policy with no increase to the amount in the last 10 years. The policy matured and included bonuses in addition to the cash payment amount. The combined lump sum payment was paid to you being the beneficiary of the policy.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 26AH | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-10

Reasons for decision: Summary: The assessable income of an Australian resident includes ordinary income and statutory income from all sources. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts. The lump sum assured amount received on maturity of a life assurance policy does not have the characteristics of ordinary income is therefore not ordinary income. Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that mounts that are not ordinary income but are included in your assessable income by provisions about assessable income are called statutory income. Bonuses received on surrender or maturity of a life policy can be considered to be statutory income and may be assessable income under section 26AH of the Income Tax Assessment Act 1936 (ITAA 1936). However where it is more than 10 years from the commencement of the policy or If the amount of premium paid has not increased by more than 25% in the last 10 years then the bonuses received on maturity of a life policy are not considered to be statutory income as they do not fall within the operation of section 26AH of the ITAA 1936 and are not included in assessable income. The lump sum and the bonus amounts you received on maturity of your life insurance policy are not income according to ordinary concepts and do not constitute assessable income.