At the point when an extra security strategy has been held by the citizen for a long time or more, reversionary rewards gotten on that arrangement are tax-exempt. For arrangements held for under 10 years, stipulated sums are incorporated into the citizen's assessable pay, and a duty balance is accessible.

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.

Assessable amount

The assessable amount of a bonus on short-term life policy is:

• the full bonus if received during the first eight years of the policy
• 2/3 of the bonus if received in the ninth year of the policy
• 1/3 of the bonus if received in the 10th year of the policy, or
• nil if received 10 or more years after the policy started.

Losses on policies cannot be claimed as a deduction.

Resetting of policy commencement date

Where a policy risk started after August 27, 1982, and premiums are increased by more than 25% of the premium payable in the preceding year, the policy is deemed to recommence on the anniversary of the date it started (in the year that increased premium was paid).

This has the impact of resetting the begin date of the arrangement and results in rewards being completely or somewhat assessable inside 10 years from the new begin date. That impact can be stayed away from if the abundance premium (the part that surpasses a 25% expansion) is paid into another approach as opposed to the current strategy.

Note: IT 2346 states that fixed premiums are not taken to have increased just because they are paid in advance or arrears.

Example: If a strategy begun on 1 June 2010, and the approach proprietor paid a $500 premium in 2012, 2013 and 2014 separately, and a $800 premium in 2015, the esteemed date of initiation would progress toward becoming 1 June 2015.

If an income bond is converted to a life insurance policy, the income bond is terminated and the commencement date cannot be carried over to the insurance policy (ATO ID 2003/767).

Tax & Super Australia: Life policy bonuses and tax