1: Will the lump sum amount paid to you on the maturity of the foreign life insurance policy be included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
: 1 No. The lump sum payment you will receive on the maturity of your foreign life insurance policy is not income according to ordinary concepts and is therefore not assessable under section 6-5 of the ITAA 1997. Question 2: Will the lump sum amount paid to you on the maturity of the foreign life insurance policy be included in your assessable income under section 26Ah of the Income Tax Assessment Act 1936 (ITAA 1936) ? Answer: 2 No. Your foreign life insurance policy has reached its full term after a date more than 10 years after the date of commencement. Therefore, the lump sum payment is not assessable under section 26AH of the ITAA 1936. Question 3: Will any capital gain or loss arising in relation to the payment of the lump sum amount to you from the foreign life insurance policy be disregarded under subsection 118-300(1) of the ITAA 1997? Answer: 3 Yes. You are the original owner of the foreign life insurance policy. Therefore, any capital gain or loss will be disregarded in relation to the lump sum payment arising on the maturity of the foreign life insurance policy under subsection 118-300(1) of the ITAA 1997.
Accordingly, the lump sum amount received on the maturity of your foreign life insurance policy, that you held for more than 10 years, will not need to be included as assessable income in the financial year it is received. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
You and your spouse, Person A, purchased a property located in Country X that was your primary residence (the Property). You and Person A entered into a mortgage arrangement in Country X which included an interest-only loan and two linked life insurance mortgage policies (the Policies). The total amount of the premiums for the Policies was paid for their full duration of several decades. The Policies are designed to repay the mortgage upon the insured's death, or after a fixed term. They are not investment-linked policies, nor do they have units or market-based products, with their purpose being to repay a mortgage on the insured's death or on maturity. You were the policyholder of one of the foreign life insurance policies (the Policy) which had an effective life from Date 1, for several decades until Date 2. You are the insured, and you would benefit if you were alive on Date 2, with a payment being payable on Date 2 on the maturity of the Policy. The Policy: • was privately funded via lump sum premium payment when the Policies were taken out • was not linked to your past employment or any occupational pension scheme
• was not payable in regular instalments; and • was issued by a commercial insurer under a mortgage-related structure, not under social security legislation. Person A is the policyholder of the other foreign life insurance policy, which was only payable to Person A if you, as the insured person passed away prior to Date 2, with the payment being for a guaranteed benefit component. There were no bonuses credited prior to the maturity of the Policies, or any units or employer contributions in relation to either of the life insurance policies. There have been no partial withdrawals and/or surrenders in relation to either foreign life insurance policy. After some years you and Person A sold the Property, and the sale proceeds were used to pay the linked mortgage, with the Policies for life insurance remaining in place. You and Person A migrated to Australia after the Property had been sold. You are a resident of Australia for taxation purposes.
A lump sum payment (the lump sum amount) will be paid to you upon the maturity of the Policy on Date 2. The lump sum amount will include a specified capital amount, and a specified non-guaranteed profit component. The profit component of the lump sum amount is the guaranteed capital increment that accrues under a Country X contractual life-insurance formula. You are not a resident of Country X for taxation purposes. The Country X Tax Authority has confirmed that the payout of the lump sum amount is tax free in Country X. You are currently finalising identity verification documentation and will receive the lump sum amount during the ruling period.
Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 6-15 Income Tax Assessment Act 1997 subsection 118-300(1) Income Tax Assessment Act 1936 section 26AH