1 Are the single premium non-qualifying life assurance policies (the Investment Bonds) invested in the name of a foreign testamentary trust (the Trust), and assigned to you, life assurance policies as defined in section 6 of the Income Tax Assessment Act 1936 (ITAA 1936) and life insurance policies as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. Section 6 of the ITAA 1936 gives "life assurance policy" the same meaning as "life insurance policy" in the ITAA 1997. Section 995-1 of the ITAA 1997 gives "life insurance policy" the meaning given to the term "life policy" in the Life Insurance Act 1995 . Section 9 of the Life Insurance Act 1995 describes a number of products that are life policies for the purposes of the act. The Investment Bonds provide for the payment of money on the death of a person which meets one definition of a life policy in that act. Question 2 Will CGT event E5 or CGT event E7 apply to include an amount in your assessable income on the assignment of the Investment Bonds? Answer No. Subsection 104-75(1) of the ITAA 1997 provides that CGT event E5 happens where a beneficiary becomes absolutely entitled to an asset of the trust. However, paragraph 104-75(6)(a) further provides that any capital gain or loss of the beneficiary is disregarded where the beneficiary obtained the asset for no expenditure.
Similarly, subsection 104-85(1) of the ITAA 1997 provides that CGT event E7 happens where the trust disposes of an asset of the trust in satisfaction of the beneficiary's interest in the capital of the trust. However, paragraph 104-85(6)(a) further provides that any capital gain or loss of the beneficiary is disregarded where the beneficiary obtained the asset for no expenditure. Question 3 Will CGT event C2 apply when you redeem the Investment Bonds? Answer Yes. Section 104-25 of the ITAA 1997 provides that CGT event C2 happens when your ownership of an intangible asset ends through redemption. Question 4 Will any capital gain or loss you make from a CGT event in relation to the Investment Bonds be disregarded under section 118-300 of the ITAA 1997? Answer Yes. Section 118-300 of the ITAA 1997 provides that in certain situations capital gains or losses arising from CGT events in relation to life insurance policies are disregarded. Item 4 in the table in subsection 118-300(1) provides the capital gain or loss will be disregarded when a CGT event happens to a life insurance policy you acquired for no consideration. Question 5
Will Subdivision 115-C of the ITAA 1997 apply to include any capital gains the trust may make on assignment of the Investment Bonds in your assessable income? Answer No. Taxation Determination 2017/23 Income tax: does the residency assumption in subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936) apply for the purpose of section 855-10 of the Income Tax Assessment Act 1997 (ITAA 1997), which disregards certain capital gains of a trust which is a foreign trust for CGT purposes? explains that Subdivision 115-C of the ITAA 1997 does not treat the beneficiaries of a foreign trust as having capital gains (or make the trustee assessable) in respect of CGT events where the asset is not taxable Australian property. However, where the amount is paid or applied for the benefit of a resident beneficiary it may be included in the beneficiary's assessable income under section 99B of the ITAA 1936. Question 6 Will the assignment of the Investment Bonds to you by the trust give rise to any assessable income under section 99B of the ITAA 1936? Answer
No. Paragraph 99B(2)(a) of the ITAA 1936, reduces an amount to be included in the beneficiary's assessable income, as prescribed by subsection 99B(1), by so much of that amount as represents the corpus of the trust estate (but not to the extent that it is attributable to income derived by the trust which would have been subject to tax had it been derived by a resident taxpayer). The Investment Bonds form part of the corpus of the Trust and would not be included in the assessable income of a resident taxpayer unless it represented a capital gain. However, insofar as any part of the assignment of the bonds does represent a capital gain that the Trust may have made in relation to the Investment Bonds, it would be disregarded under Item 3 in the table in section 118-300 of the ITAA 1997. Question 7 Will the redemption of the Investment Bonds give rise to any amount to be included in your assessable income under section 26AH of the ITAA 1936? Answer
No. Section 26AH of the ITAA 1936 operates to include reversionary bonuses from life assurance policies in your assessable income if they would not otherwise be included. However, it only applies where policies are redeemed within 10 years of the commencement date of the risk. The commencement date of the risk for the Investment Bonds was more than 10 years ago. This ruling applies for the following periods : Year ending 30 June 20XX Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
You are an Australian resident for tax purposes. Your parent has never been an Australian resident for tax purposes. Your parent died more than XX years ago. Under the terms of their will a testamentary discretionary trust was established (the Trust). You were a trustee of the Trust. You are also a beneficiary of the Trust. You resigned as a trustee of the Trust around XX years ago. None of the other trustees of the Trust are Australian residents for tax purposes and the Trust is a foreign trust. XXXX amount was settled on the trust. In XXXX the trustees applied part of the settled sum to purchase four single premium UK non-qualifying life assurance policies, known as investment bonds (the Investment Bonds). Each Investment Bond has the following key features: • Two lives insured, including yours. • A single initial premium paid. • The assured sum is paid on the death of the second life assured. Holders may surrender the Investment Bonds prior to the death of the assured lives and receive a bonus.
Withdrawals from the investment bonds are also possible and several withdrawals have been made in recent years. The withdrawn amounts have only been applied for the benefits of non-residents. The trustees intend to assign the bonds to certain of the beneficiaries, including you. You intend to surrender or encash the Investment Bonds.
Income Tax Assessment Act 1936 section6 Income Tax Assessment Act 1936 section26AH Income Tax Assessment Act 1936 section99B Income Tax Assessment Act 1997 section 104-25 Income Tax Assessment Act 1997 section 104-75 Income Tax Assessment Act 1997 section 104-85 Income Tax Assessment Act 1997 Subdivision 115-C Income Tax Assessment Act 1997 section 118-300 Income Tax Assessment Act 1997 section 995-1