Tax-free life policy bonuses

When a life insurance policy has been held by the taxpayer for 10 years or longer, reversionary bonuses received on that policy are tax-free. A reversionary bonus is the profit earned annually on traditional life contracts on top of the sum-insured.

For policies held less than 10 years, stipulated amounts are included in the taxpayer’s assessable income and a tax offset is available.

A bonus is not assessable income if it is received:

  • at least 10 years after the policy was first acquired
  • under a life assurance policy that was part of a superannuation fund or scheme when the person on whose life the policy was effected dies, has an accident, illness or other disability, or
  • as a result of serious financial difficulties, provided the policy was not taken out with a plan to mature or be terminated within 10 years.
Posted in

Welcome to the InterActive Tax Consultants’ news – part of our personal and easy to understand approach to taxation. We are committed to working with you to achieve the best results for your business. If you have any question or would like more information on any of the articles please contact us.