eligible policy means a life assurance policy in relation to which the date of commencement of risk is after 27 August 1982, other than a funeral policy (as defined in the Income Tax Assessment Act 1997) issued on or after 1 January 2003.
eligible reckoning date, in relation to an eligible policy, means the date of commencement of an assurance year that, for the purposes of an application of subsection (13), is the premium increase year referred to in that subsection.
(2) Where a paid‑up life assurance policy is issued to a taxpayer in lieu of an eligible policy:
(a) the paid‑up policy shall, for the purposes of this section, be deemed to be a continuation of the eligible policy; and
(b) no amount shall be taken for the purposes of subsection (4) to have been re‑invested or otherwise dealt with on behalf of the taxpayer or as he or she directs in connection with the issue of the paid‑up policy to the taxpayer in lieu of the eligible policy.
(3) This section applies to any amount received after 27 August 1982 under an eligible policy.
(4) For the purposes of this section, but subject to subsection (5), a taxpayer shall be taken to have received an amount under or in relation to an eligible policy although the amount is not actually paid to the taxpayer but is re‑invested or otherwise dealt with on his or her behalf or as he or she directs.
(5) Subsection (4) does not apply in relation to an amount in relation to an eligible policy if the amount is re‑invested or otherwise dealt with on behalf of the taxpayer or as the taxpayer directs so as to increase the amount that might reasonably be expected to be received under the eligible policy on a surrender or maturity of the eligible policy.
(6) Where, during the eligible period in relation to an eligible policy, a taxpayer receives an amount (in this subsection referred to as the relevant amount) under the policy as or by way of a bonus, being an amount that, but for this section, would not be included in the assessable income of the taxpayer of any year of income, the assessable income of the taxpayer of the year of income in which the relevant amount is received shall include:
(a) if the relevant amount is received during the first 8 years of the eligible period—an amount equal to the relevant amount;
(b) if the relevant amount is received during the ninth year of the eligible period—an amount equal to two‑thirds of the relevant amount; or
(c) if the relevant amount is received during the tenth year of the eligible period—an amount equal to one‑third of the relevant amount.
(6A) If, during the year of income, an amount referred to in subsection (6) is received during the eligible period in relation to an eligible policy held by the trustee of a non‑complying superannuation fund:
(a) subsection (6) does not apply to the amount; and
(b) the amount is included in the assessable income of the fund of the year of income.
(7) Subsection (6) does not apply to any amount received by a taxpayer in a year of income under an eligible policy where:
(a) the amount is received in consequence of:
(i) the death of the person on whose life the policy was effected; or
(ii) an accident, illness or other disability suffered by the person on whose life the policy was effected; or
(aa) the eligible policy is an RSA; or
(b) the eligible policy is held by the trustee of:
(i) a complying superannuation fund; or
(ii) a complying approved deposit fund; or
(iii) a pooled superannuation trust; or
(ba) the eligible policy is issued by a life assurance company and the company’s liabilities under the policy are to be discharged out of:
(i) complying superannuation assets within the meaning of the Income Tax Assessment Act 1997; or
(ii) segregated exempt assets within the meaning of that Act; or
(c) except where the policy was effected, purchased or taken on assignment with a view to it being forfeited, surrendered or otherwise terminated, or to it maturing, within 10 years—the amount was received by the taxpayer by reason of the forfeiture, surrender or other termination of the whole or a part of the policy in circumstances arising out of serious financial difficulties of the taxpayer.
(8) Where:
(a) subsection (6) would, but for this subsection, apply to an amount (in this subsection referred to as the relevant amount) received by a taxpayer by reason of the forfeiture, surrender or other termination of the whole or a part of an eligible policy; and
(b) the Commissioner, having regard to:
(i) the total amount of premiums paid under the eligible policy;
(ii) the total amounts received by the taxpayer or by any other person under the eligible policy and the total amounts of bonuses included in the amounts so received;
(iii) the amount of the surrender value of the eligible policy at the time when the forfeiture, surrender or other termination occurred; and
(iv) such other matters as the Commissioner considers relevant, is of the opinion that it would be unreasonable for subsection (6) to apply to the relevant amount or to a part of the relevant amount;
subsection (6) does not apply to the relevant amount, or to that part of the relevant amount, as the case may be.
(9) Where:
(a) otherwise than as or by way of a bonus, a taxpayer receives an amount (in this subsection referred to as the relevant amount) under an eligible policy; and
(b) the Commissioner is of the opinion that the relevant amount or a part of the relevant amount represents the whole or part of:
(i) a bonus that has accrued or has been declared in respect of the policy; or
(ii) a bonus that can reasonably be expected to accrue in respect of the policy;
the relevant amount or the part of the relevant amount, as the case may be, shall, for the purposes of subsection (6), be deemed to have been received by the taxpayer under the policy as or by way of a bonus.
(10) Where:
(a) subsection (9) applies by reason that the Commissioner has formed an opinion under paragraph (9)(b) that the whole or a part of an amount received by a taxpayer represents the whole or a part of a bonus; and
(b) the taxpayer subsequently receives an amount (in this subsection referred to as the actual bonus), being the whole or a part of the bonus, or of the part of the bonus, as the case may be, referred to in paragraph (a) of this subsection;
the following provisions have effect:
(c) the operation of subsection (9) is not affected by the receipt of the actual bonus; and
(d) no part of the actual bonus shall be included in the assessable income of the taxpayer.
(11) Where, in relation to an eligible policy, a taxpayer receives an amount from the assurer, or from another person at the request of, or under an agreement with, the assurer, by way of an advance or loan in respect of which interest is not payable or in respect of which interest is payable at a rate less than the rate of interest that could reasonably be expected to be payable in respect of a loan of the same amount made on similar terms and conditions by the assurer or the other person, as the case may be, to a person with whom the assurer or that other person was dealing at arm’s length, the amount shall, for the purposes of subsection (9), be deemed to be an amount to which paragraph (9)(a) applies.
(12) Where an eligible policy, or any right to receive any benefits that have accrued, or will or may reasonably be expected to accrue, under an eligible policy, is sold or assigned in whole or in part by a taxpayer during the eligible period in relation to the policy:
(a) the amount of any consideration received by the taxpayer in respect of that sale or assignment shall be deemed to be an amount to which paragraph (9)(a) applies; and
(b) subsections (9) and (10) apply in relation to that consideration as if “represents” were omitted from paragraphs (9)(b) and (10)(a) and “is attributable” to were substituted.
(13) Where the amount of the premiums payable under an eligible policy in relation to an assurance year (in this subsection referred to as the premium increase year) exceeds by more than 25% the amount of the premiums payable under the policy in relation to the immediately preceding assurance year, the eligible period in relation to the policy shall, for the purposes of:
(a) the application of subsection (6) in relation to any amount received under the policy after the date of commencement of the premium increase year and before the first subsequent eligible reckoning date (if any) in relation to the eligible policy; and
(b) the application of subsection (12) in relation to any sale or assignment of the policy after the date of commencement of the premium increase year and before the first subsequent eligible reckoning date (if any) in relation to the eligible policy;
be reckoned from the date of commencement of the premium increase year.
(14) This section has effect in relation to an eligible policy in relation to which the date of commencement of risk is on or before 7 December 1983 as if:
(a) “10 years” were omitted from the definition of eligible period in subsection (1) and “4 years” were substituted;
(b) “8 years”, “ninth year” and “tenth year” were omitted from subsection (6) and “2 years”, “third year” and “fourth year” respectively were substituted; and
(c) “10 years” were omitted from paragraph (7)(c) and “4 years” were substituted.
26AJ Investment‑related lottery winnings to be included in assessable income
(1) If:
(a) either:
(i) a loan benefit is provided to a taxpayer, or to another person, in respect of a year of income (in this subsection called the current year of income); or
(ii) an amount (other than loan principal) is paid or credited to a taxpayer, or to another person, during a year of income (in this subsection also called the current year of income); or
(iii) other property or services are provided to a taxpayer, or to another person, during a year of income (in this subsection also called the current year of income); and
(b) the making of a loan, the payment or crediting of the amount, or the provision of the property or services, as the case may be, is by way of winnings from:
(i) betting (including pool betting); or
(ii) a lottery or other form of gambling; or
(iii) a game with prizes; and
(c) the chance to participate in the betting, lottery, gambling or game (in this subsection called the betting chance) was provided:
(i) wholly or partly in respect of an investment held by the taxpayer in or with a third person (who may be an associate of the taxpayer) (in this subsection called the investment body); or
(ii) wholly or partly in relation directly or indirectly to such an investment; and
(d) the betting, lottery, gambling or game was organised by, or on behalf of:
(i) the investment body (either acting alone or together with one or more other persons); or
(ii) an associate of the investment body (either acting alone or together with one or more other persons); and
(e) if the recipient of the loan benefit, amount or property or services, as the case may be, is a person other than the taxpayer—either:
(i) the other person is an associate of the taxpayer; or
(ii) the loan benefit, amount or property or services, as the case may be, is provided under an arrangement to which the taxpayer, or an associate of the taxpayer, is a party; and
(f) no part of the value of the betting chance is included in the assessable income of the taxpayer of any year of income; and
(g) the provision of the betting chance is neither:
(i) a fringe benefit; nor
(ii) a benefit that, apart from paragraph (g) of the definition of fringe benefit in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, would be a fringe benefit;
then:
(h) if subparagraph (a)(i) applies—the taxpayer’s assessable income of the current year of income includes the amount (if any) by which the benchmark amount of interest in relation to the loan in respect of the current year of income exceeds the amount of interest that has accrued on the loan in respect of the current year of income; or
(i) if subparagraph (a)(ii) applies—the taxpayer’s assessable income of the current year of income includes the amount paid or credited; or
(j) if subparagraph (a)(iii) applies—the taxpayer’s assessable income of the current year of income includes the arm’s length value of the property or services, reduced by the recipient’s contribution (if any).
(2) If:
(a) apart from this subsection, an amount (in this subsection called the gross assessable amount) is included in a taxpayer’s assessable income of a year of income under paragraph (1) (h) in respect of a loan benefit; and
(b) assuming that:
(i) the recipient of the loan benefit had, on the last day of the period (in this subsection called the loan period) during the year of income when the recipient was under an obligation to repay the whole or any part of the loan, incurred and paid unreimbursed interest (in this subsection called the gross interest), in respect of the loan, in respect of the loan period; and
(ii) the amount of the gross interest was equal to the benchmark amount of interest in relation to the loan in respect of the year of income;
a once‑only deduction (in this subsection called the gross deduction) would, or would apart from Subdivisions F and GA of Division 3 of this Part, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the recipient in respect of the gross interest;
the gross assessable amount is reduced by:
(c) if no interest accrued on the loan in respect of the loan period—the amount of the gross deduction; or
(d) in any other case—the amount worked out using the formula:
Start formula Gross deduction minus Reducing amount end formula
where:
Gross deduction means the amount of the gross deduction.
Reducing amount means the amount (if any) that would, or that would apart from Subdivisions F and GA of Division 3 of this Part, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable as a once‑only deduction to the recipient in respect of the interest that accrued on the loan in respect of the loan period if that interest had been incurred and paid by the recipient on the last day of the loan period.
(3) If:
(a) apart from this subsection, an amount (in this subsection called the gross assessable amount) is included in a taxpayer’s assessable income of a year of income under paragraph (1)(j) in respect of the provision of property or services; and
(b) assuming that:
(i) the recipient of the property or services had, at the time the property or services were provided, incurred and paid unreimbursed expenditure in respect of the provision of the property or services; and
(ii) the expenditure was equal to the amount of the arm’s length value of the property or services;
a once‑only deduction would, or would apart from Subdivisions F and GA of Division 3 of this Part, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the recipient in respect of a percentage (in this subsection called the deductible percentage) of the expenditure;
the gross assessable amount is reduced by the deductible percentage.
(4) For the purposes of the application of this section to a taxpayer, if a person (in this subsection called the provider) makes a loan to another person (who may be the taxpayer) (in this subsection called the recipient):
(a) the making of the loan is taken to constitute a loan benefit provided by the provider to the recipient; and
(b) that loan benefit is taken to be provided in respect of each year of income of the taxpayer during the whole or part of which the recipient is under an obligation to repay the whole or any part of the loan.
(5) For the purposes of this section, if a person (in this subsection called the provider) makes a deferred interest loan (in this subsection called the principal loan) to another person (in this subsection called the recipient):
(a) the provider is taken, at the end of:
(i) the period of 6 months commencing on the day on which the principal loan was made; and
(ii) each subsequent period of 6 months;
(being in either case a period during the whole of which the recipient is under an obligation to repay the whole or any part of the principal loan) to have made a loan (in this subsection called the deemed loan) to the recipient; and
(b) the amount of the deemed loan is equal to the amount by which the interest (in this subsection called the accrued interest) that has accrued on the principal loan in respect of that period exceeds the amount (if any) paid in respect of the accrued interest before the end of that period; and
(c) if any part of the accrued interest becomes payable or is paid after the time when the deemed loan is taken to have been made, the deemed loan is to be reduced accordingly; and
(d) the deemed loan is taken to have been made at a nil rate of interest.
(6) For the purposes of this section, if no interest is payable in respect of a loan, a nil rate of interest is taken to be payable in respect of the loan.
(7) For the purposes of this section, a person is taken to be under an obligation to pay or repay an amount even though the amount is not due for payment or repayment.
(8) For the purposes of this section, if a person does anything that results in the creation of property in another person, the first‑mentioned person is taken to have provided that property to the other person at the time when the property comes into existence.
(9) For the purposes of this section, if:
(a) a particular mode of application of money by a taxpayer in relation to another person (in this subsection called the investment body) would not, apart from this subsection, be an investment; and