Issue
Are bonuses received by a taxpayer, who purchases a life insurance policy before 1982, included in assessable income upon termination of the policy under subsection 26AH(13) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. As the terms and conditions of the life insurance policy allow a taxpayer to make further premium payments, any bonuses received by the taxpayer upon termination of the policy will not be included in assessable income under subsection 26AH(13) of the ITAA 1936.
Facts
A taxpayer purchased a life insurance policy prior to 1982. The terms and conditions of the life insurance policy allow the taxpayer to make additional premiums. The taxpayer proposes to make additional premium payments.
Reasons for Decision
The assessability of bonuses received upon the termination of a life insurance policy, where additional premium payments have been made, is determined by subsection 26AH(13) of the ITAA 1936. The subsection only applies if the taxpayer's policy is an eligible policy as defined in subsection 26AH(1) of the ITAA 1936. An eligible policy is a life insurance policy where the commencement of risk is after 27 August 1982.
Paragraph 17 of Taxation Ruling IT 2346 states: 'Where the conditions attached to an eligible policy are varied (e.g., an increase in the sum insured or a change in its term), the rearrangement of the policy conditions does not give rise to a new eligible policy ...'
The terms and conditions of the taxpayer's policy allows for additional premium payments, therefore, the date of commencement of risk of the life insurance policy remains unaltered (i.e., prior to 27 August 1982). Any bonuses received upon termination of the policy will not be included in the taxpayer's assessable income as subsection 26AH(13) of the ITAA 1936 has no application.