Ruling period: 1 July 2008 to 30 June 2009

Ruling: Question and Answer | 1. As the taxpayer went from temporary resident to permanent resident, as at xx xx xx, is the amount to be included at either item E in worksheet 5 the market value as at that date. | Yes. | Section 596, step 1 notes that section 596(2)(a); "first determine the cash surrender value of the taxpayers interest at the end of the notational accounting period". | 2. Can this number that is show at item A of worksheet 5 be the Australia dollar equivalent? | Yes. | If the taxpayer incurs a foreign investment fund loss and a foreign investment fund attribution surplus for the foreign life assurance policy is there an allowable deduction in the year the loss is incurred? | Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. For the year ended xx xx xx you were a temporary resident up to xx xx xx. On xx xx xx you were granted a permanent visa. You have an investment in A which has a minimum of X years. You believe the investment falls within the definition of a foreign life assurance policy as per Taxation Ruling TR 2003/D10. You have included in your xx tax return income from the investment under the foreign life assurance policy provisions. You do not have any foreign investment fund investments.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 533 | Income Tax Assessment Act 1936 Section 482 | Income Tax Assessment Act 1936 Section 596 | Income Tax Assessment Act 1936 Subsection 596(2)(a) | Income Tax Assessment Act 1936 Section 599 | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Subsection 6-10(4) | Income Tax Assessment Act 1997 Section 855-45 Reason for Decision | A taxpayer who is an Australian resident for tax purposes is liable to Australian tax on ordinary income and statutory income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Refer to subsections 6-5(2) and 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997). Question 1 | Capital Gains Tax | Under section 855-45 of the Income Tax Assessment Act 1997 , the first element of the cost base and reduced cost base of the asset (at the time you become an Australian resident) is its market value at that time. In your facts you stated you became an Australian resident on xx xx xx, therefore the market value of the Foreign Life Assurance Policy (FLP) will be at that time. | Question 2 | Foreign Life Assurance Policy | A FLP is defined in section 482 of the Income Tax Assessment Act 1936 (ITAA 1936) as a life assurance policy issued by an entity that was not a resident of Australia at any time in that year of income. There are four exclusions from the definition of a life assurance policy for the purposes of the FIF measures: (a) an Australian policy | (b) policies providing payment on death or permanent disability only | (c) policies issued before 1 July 1992 which cannot after that date be cancelled, surrendered or redeemed and for which the terms have not after that date been altered in a material way | (d) a contract of reinsurance between a resident insurer and a non resident insurer in relation to life assurance policies which provide only life cover. | The calculation of the foreign investment fund amount is found under section 596 of the ITAA 1936. | Subsection 596(2)(a) states; | First determine the cash surrender value of the taxpayer's interest at the end of the period; | The foreign investment guide 2008-09, page 76, worksheet 5, Cash surrender value method of FLPs, advises; | Part 1 - Express the amounts in B to G in the same currency as the amount in A | Therefore; you are expected to use the same currency throughout the calculation of worksheet 5. | Question 3 | Under section 599 of the ITAA 1936 it states; | If the foreign investment fund amount as worked out under section 596 is a minus amount, that amount is a foreign investment fund loss incurred by the taxpayer from the FLP in respect of the relevant period. | Section 533 of the ITAA 1936 states; | Foreign investment fund loss from FLP under cash surrender value method to be allowable deduction if: | (a) a taxpayer incurs a foreign investment fund loss under section 599 from a FLP in respect of a notional accounting period; and | (b) a Foreign Investment Fund (FIF) attribution surplus for the FLP under section 604 exists in relation to the taxpayer at the end of that notional accounting period; | So much of that FIF loss as does not exceed that FIF attribution surplus is an allowable deduction from the taxpayer's assessable income of the year of income in which that notional accounting period ended. | However, in your facts you stated you do not have any FIF therefore any FLP loss would not be an allowable deduction.

Reasons for decision: Detailed Reasoning - Capital Gains Tax: Under section 855-45 of the Income Tax Assessment Act 1997 , the first element of the cost base and reduced cost base of the asset (at the time you become an Australian resident) is its market value at that time. In your facts you stated you became an Australian resident on xx xx xx, therefore the market value of the Foreign Life Assurance Policy (FLP) will be at that time. | Detailed Reasoning - Foreign Life Assurance Policy: A FLP is defined in section 482 of the Income Tax Assessment Act 1936 (ITAA 1936) as a life assurance policy issued by an entity that was not a resident of Australia at any time in that year of income. There are four exclusions from the definition of a life assurance policy for the purposes of the FIF measures: (a) an Australian policy (b) policies providing payment on death or permanent disability only (c) policies issued before 1 July 1992 which cannot after that date be cancelled, surrendered or redeemed and for which the terms have not after that date been altered in a material way (d) a contract of reinsurance between a resident insurer and a non resident insurer in relation to life assurance policies which provide only life cover. The calculation of the foreign investment fund amount is found under section 596 of the ITAA 1936. Subsection 596(2)(a) states; First determine the cash surrender value of the taxpayer's interest at the end of the period; The foreign investment guide 2008-09, page 76, worksheet 5, Cash surrender value method of FLPs, advises; Part 1 - Express the amounts in B to G in the same currency as the amount in A Therefore; you are expected to use the same currency throughout the calculation of worksheet 5. | Detailed Reasoning - Question 3: Under section 599 of the ITAA 1936 it states; If the foreign investment fund amount as worked out under section 596 is a minus amount, that amount is a foreign investment fund loss incurred by the taxpayer from the FLP in respect of the relevant period. Section 533 of the ITAA 1936 states; Foreign investment fund loss from FLP under cash surrender value method to be allowable deduction if: (a) a taxpayer incurs a foreign investment fund loss under section 599 from a FLP in respect of a notional accounting period; and (b) a Foreign Investment Fund (FIF) attribution surplus for the FLP under section 604 exists in relation to the taxpayer at the end of that notional accounting period; So much of that FIF loss as does not exceed that FIF attribution surplus is an allowable deduction from the taxpayer's assessable income of the year of income in which that notional accounting period ended. However, in your facts you stated you do not have any FIF therefore any FLP loss would not be an allowable deduction.

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