Private ruling: Maturity payment on overseas endowment policy - capital loss
Published: June 2013
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Is any capital gain or capital loss that you make on receipt of a maturity payment on an overseas endowment disregarded? | A1: 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. You and your spouse jointly entered into an overseas endowment policy. The policy was entered into to cover part of the purchase cost of your family home while you were residents of the overseas country. You and your spouse moved to Australia some years later. You and your spouse originally moved to Australia for a specified period of an employment contract. You retained your overseas residence and intended to return to it. Some time later, a permanent employment opportunity arose and you and your spouse obtained permanent residency in Australia. You and your spouse sold the overseas residence and cleared the loan from the mortgage lender with the proceeds from the sale. You and your spouse retained the endowment policy as an investment fund with the added benefit of life insurance. Sufficient funds were left in an overseas bank account to pay the monthly premiums by direct debit and since this arrangement continued automatically you and your spouse more or less forgot about the policy. The policy matured and you have calculated that you will make a capital loss on the maturity of the policy. You have provided a copy of the policy particulars and this document forms part of the arrangement to which this private ruling applies. The policy particulars confirm that the endowment policy is a foreign life policy as defined by section 482 of the Income Tax Assessment Act 1936 (ITAA 1936).

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 482, | Income Tax Assessment Act 1997 Section 102-20 and | Income Tax Assessment Act 1997 Section 118-300.

Reasons for decision: Summary: A capital gain or capital loss may be made if a capital gains tax (CGT) event happens to a CGT asset. However, section 118-300 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if a CGT event happens to a life insurance policy, any capital gain or loss made by the beneficial owner of the policy is disregarded for CGT purposes. In your case, you and your spouse are the beneficial owners of the policy. Therefore, any capital gains or capital loss on the maturity of you and your spouse's policy is disregarded for CGT purposes.