Issue
Is the increase in value of foreign life assurance policies held by an Australian resident taxpayer, assessable under section 529 of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The increase in value of the taxpayer's foreign life assurance policies is assessable income under section 529 of the ITAA 1936.
Facts
An individual who became an Australian resident in the early 1990's, had taken out a number of life assurance policies before leaving their previous country of residence.
The policies, payable by monthly premiums, mature 20 years or more after their respective dates of commencement. Cash distributions are payable only on maturity, although all the policies held can be surrendered before maturity.
None of the policies are Australian policies. They are not subject to taxation in the previous country of residence and they do not involve reinsurance.
The taxpayer's interests in foreign life policies (FLPs) exceed $50,000.
Reasons for Decision
Section 529 of the ITAA 1936 operates to include an increase in the taxpayer's interest in FLPs in the taxpayer's assessable income under the foreign investment fund (FIF) measures contained within Division 16 of the ITAA 1936.
A FLP is defined in section 482 of the 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 foreign investment fund (FIF) measures: (1) An Australian policy (2) Policies where the payment of money is only on death, or death or permanent disability (3) 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 any material way (4) A contract of reinsurance between a resident insurer and a non-resident reinsurer for life insurance policies which provide only life cover.
In this case, none of the exclusions apply. The policies are not Australian policies. The payment of money occurs not only on death or permanent disability as the policies all have maturity dates upon which they will be paid out, they may be surrendered at any time for value, and they do not involve reinsurance.
There are also a number of other exemptions from the FIF regime. However none of the exemptions apply in this case.
Accordingly, the life policies held by the taxpayer are considered to be life assurance policies that are subject to the FIF provisions.