Bonuses from Life Insurance Policies and Friendly Society Bonds

Investment bonds are taxed at the life insurance company tax rate of 30%.

 

Which bonuses are taxable?

 

You need to include a bonus amount in your taxable income if all the following conditions apply:

 

·         within 10 years from when the policy started, you have actually received the bonus amount or have directed how it is to be dealt with

·         your life insurance policy or friendly society insurance bond matured, was partly or fully surrendered, terminated or forfeited

·         the bonus amount is in addition to the capital amount that you have paid to the life insurance company or friendly society

·         your bonus is not in the excluded list below

 

Important

 

If, during the term of your policy or bond, you increased the amount of your premiums by more than 25% of the amount of premiums you paid in the previous policy year, your policy is taken to start at the beginning of the policy year in which you paid the increased premiums.  This means that you may need to include some or all of a bonus amount in your assessable income. 

 

How much to include?

 

·         the whole bonus amount you received if you received it during the first eight years of the policy

·         two-thirds of the bonus amount you received if you received it during the ninth year of the policy, or

·         one-third of the bonus amount you received if you received it during the tenth year of the policy

 

Do not include any bonus amount received after the tenth year of the policy.

 

You cannot claim a loss if your life insurance policy or friendly society insurance bond matured or was partly of fully surrendered, terminated or forfeited. 

 

 

Excluded list - do not declare as income

 

>any life insurance bonuses from policies that

 

·         you started before 28 August 1982

·         matured due to the death of the person insured

·         you surrendered due to an accident, illness or other disability of the person insured

·         you surrendered due to severe financial hardship

·         are retirement savings accounts

 

>any bonus you have not actually received or directed how it is to be dealt with

 

>different rules apply to a bonus received from a policy that started on or after 28 August 1982 and before 8 December 1983.  Generally such a bonus does not need to be included in assessable income unless the policy has been taken to start at a later date and the rules apply. 

 

Note -  benefits from friendly society income bonds are not treated as bonuses.  Include these amounts at item 24 Other Income.