Your FLP for an income year is a life assurance policy issued by an entity that was not a resident at any time in that income year.
A life assurance policy is one that provides for the payment of benefits:
- upon death, other than death by accident or specified sickness only, or
- on the happening of a specified event which relates to the ending or continuing of a human life.
A life assurance policy also includes an instrument that grants an annuity for a term dependent upon a human life. [subsection 482(2)]
The FIF measures do not apply to the following four categories of life policies:
- an Australian policy, provided that the entity which issued the policy was authorised under the Life Insurance Act 1995 to carry on life insurance business in Australia when it issued the policy
- policies that provide for payment of benefits only on death, or on death or permanent disability, and for which the premiums or premium instalments are calculated solely by reference to the period for which the life concerned is expected to continue, or within which the life concerned is expected to terminate
- policies issued before 1 July 1992 that cannot, after that date, be cancelled, surrendered or redeemed and for which the terms have not, after that date, been materially altered, or
- a contract of reinsurance between a resident insurer and a non-resident reinsurer for life assurance policies that provide only life cover. [paragraphs 482(2)(e) and (f)]
You have an interest in a FLP if you have legal title to the FLP. [subsection 483(3)]
Interest in a FLP subject to taxation
Your assessable income for an income year includes FIF income if:
- you had an interest in a FLP at any time during the FLP's notional accounting period that ends in your income year, and
- you were a resident of Australia at any time in that income year. [subsection 485(4)]
Notional accounting period of a FLP
The FIF income that is included in your assessable income is calculated for a 'notional accounting period' of the FLP.
A notional accounting period of your FLP will generally coincide with your income year - that is, a 12-month period ending 30 June each year.
If the FLP existed before 1 January 1993, the first notional accounting period of the FLP commences on 1 January 1993 and ends on 30 June 1993. If the policy came into existence on or after 1 January 1993, the first notional accounting period commences on the day that it came into existence and ends on the following 30 June. [subsection 487(7)]
Electing a notional accounting period
You may elect a different notional accounting period if a cash surrender value of your FLP is available on a day in the same month of each calendar year ('the relevant day'). This election is irrevocable for as long as you hold an interest in that particular FLP.
If you elect a different notional accounting period, your FLP's new notional accounting period will begin on the first day of the month following the last day of the month in which the relevant day occurs, and ends at the end of the month in which the next relevant day occurs.
Example: Election of notional accounting period for a FLP
The current notional accounting period of Judith's FLP is 1 July to 30 June each year. In November of each year a cash surrender value becomes available for her FLP. In September 2006 she elected to use a different notional accounting period for her FLP. The new notional accounting period will begin on the first day of the month following November - that is, 1 December - and end 12 months later on 30 November each year.
However, the first new notional accounting period of Judith's FLP did not begin in the December following the election (December 2006) but in the December before the election was made (December 2005). Therefore, the first new notional accounting period for Judith's FLP was 1 December 2005 to 30 November 2006.
The months between the start of her old notional accounting period (1 July 2005) and the start of her new notional accounting period (1 December 2005) are also a notional accounting period - that is, 1 July 2005 to 30 November 2005. [section 487]
Judith's FIF income for the period 1 July 2005 to 30 November 2005 was returned in the 2005-06 income year. Her FIF income for the period 1 December 2005 to 30 November 2006 was included in the 2006-07 income year.
End of example