On Wed 9.8.2017, the ATO issued Product Ruling PR 2017/9 (OnePath Life – OneCare Policy – Life Cover, Total and Permanent Disability Cover and/or Trauma Cover).

It provides that:

  1. the monthly payment of insurance benefits in accordance with the “instalment benefit payment type” is not assessable income of the recipient (the policy owner or a nominated beneficiary). These are broadly types of life insurance benefits, that if paid as a lump sum would not be assessable.
  2. any capital gain or loss made as a result of such a payment is disregarded under s118-37(1)(a)(ii) of the ITAA97 (about compensation for personal injury or illness) or s118-300 of the ITAA97 (about CGT on assets being rights under a life insurance policy).

The core part of the ruling is extracted below and there is a link to the ruling below as well.

DATE OF EFFECT: 1 July 2017.

[PR 2017/9; LTN 150, 9/8/17; TT August]

Extract from Ruling

Ruling

15. Subject to paragraph 3 and the assumptions in paragraph 30 of this Ruling:

(a)   Monthly payments under the instalment benefit payment type received by a policy owner under the Life Cover, TPD Cover and/or Trauma Cover, or by a nominated beneficiary under the Life Cover, will not be included in the assessable income of the policy owner or beneficiary in any year of income under section 6-5.
(b)    Monthly payments under the instalment benefit payment type received by a policy owner under the Life Cover, TPD Cover and/or Trauma Cover, or by a nominated beneficiary under the Life Cover, will not be included in the assessable income of the policy owner or beneficiary in any year of income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936).
(c)    Monthly payments under the instalment benefit payment type received by a policy owner under the Life Cover, TPD Cover and/or Trauma Cover, or by a nominated beneficiary under the Life Cover, will not be included in the assessable income of the policy owner or beneficiary in any year of income under section 15-30.
(d)    Monthly payments under the instalment benefit payment type received by a policy owner under the Life Cover, TPD Cover and/or Trauma Cover, or by a nominated beneficiary under the Life Cover, will not be included in the assessable income of the policy owner or beneficiary in any year of income under section 230-15.
(e)    No part of the monthly payments under the instalment benefit payment type received by a policy owner under the Life Cover, TPD Cover and/or Trauma Cover, or by a nominated beneficiary under the Life Cover, will be included in the assessable income of the policy owner or beneficiary in any year of income under section 159GQ of the ITAA 1936.
(f)    A capital gain or capital loss made by a policy owner as a result of OnePath Life making an instalment benefit payment in respect of TPD Cover and/or Trauma Cover will be disregarded under subparagraph 118-37(1)(a)(ii) if the life insured is the policy owner or, where the life insured and the policy owner are not the same, the life insured is a relative of the policy owner within the meaning of ‘relative’ in subsection 995-1(1).
(g)    A capital gain or capital loss made by a policy owner, or by a nominated beneficiary, as a result of OnePath Life making an instalment benefit payment in respect of Life Cover will be disregarded under section 118-300.
(h)    No deduction under section 8-1 will be available to a policy owner for premiums incurred in respect of Life Cover, TPD Cover and/or Trauma Cover.
(i)    Provided the scheme ruled on is entered into and carried out as described in this Ruling, the anti-avoidance provisions in Part IVA of the ITAA 1936 will not apply to a policy owner or beneficiary.

About the author