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Cash Bonus / Interest on Life Insurance Policy

Newbie

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Hi ATO Community,

 

I have a (foreign) life insurance policy which is more than 10 years old. Every year, the policy pays out a cash bonus which policyholders can choose to withdraw, or leave on deposit with the insurance company to generate interest, or pay any premium due. I chose to leave the cash bonus on deposit to generate interest. So therefore each year I get (i) the cash bonus and (ii) interest on that accumulated cash bonus, and I can withdraw any of these at any time (and do not need to wait until my policy is terminated or surrendered or has matured).

 

My questions are: (i) is the cash bonus assessable income, and (ii) is the interest on that cash bonus (not the cash bonus itself) assessable income? I'd like to get this right as it's the first year that I need to declare worldwide income.

 

Thanks in advance,

Que Sera Sera 

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Certified Response

Taxicorn

Replies 1

The amounts to be included at Item 22 of the supplementary tax return, depend on the date the policy commenced and the dates on which the bonuses were received. This only applies when bonuses are received on surrender or cashing-in.

 

Held less than eight years - Bonus fully assessable

Held less than nine years - 2/3 of the bonus is assessable

Held less than ten years - 1/3 of the bonus is assessable

Withdrawn in the 11 Year - Bonus exempt

 

These rules will not apply if the policy premiums have been increasing by more than 25% of the premiums payable in the previous year. If this applies the 10-year eligible period restarts from the beginning of the policy year in which the taxpayer paid the increased premiums.

 

You can find more information in Taxation Ruling IT 2346: bonuses paid on certain life assurance policies - section 26AH - interpreta....

 

2 REPLIES 2

Most helpful response

ATO Certified Response

Taxicorn

Replies 1

The amounts to be included at Item 22 of the supplementary tax return, depend on the date the policy commenced and the dates on which the bonuses were received. This only applies when bonuses are received on surrender or cashing-in.

 

Held less than eight years - Bonus fully assessable

Held less than nine years - 2/3 of the bonus is assessable

Held less than ten years - 1/3 of the bonus is assessable

Withdrawn in the 11 Year - Bonus exempt

 

These rules will not apply if the policy premiums have been increasing by more than 25% of the premiums payable in the previous year. If this applies the 10-year eligible period restarts from the beginning of the policy year in which the taxpayer paid the increased premiums.

 

You can find more information in Taxation Ruling IT 2346: bonuses paid on certain life assurance policies - section 26AH - interpreta....

 

Newbie

Replies 0

Many thanks, macfanboy and ATO team.