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ATO Warns Against Offshore Life Insurance Policies

by Mary Swire,, Hong Kong

26 November 2009

The Australian Taxation Office (ATO) has issued an alert that warns taxpayers to be cautious about investing in life insurance policies issued from insurance companies based in offshore jurisdictions, such as Vanuatu.

In the alert, Tax Commissioner, Michael D’Ascenzo said that he is concerned these arrangements may attempt to exploit the lack of transparency in such jurisdictions, and are designed to circumvent the Australian tax payable under the foreign investment fund measures.

According to D’Ascenzo, Australian resident participants involved in these arrangements may be individuals, companies, trusts, or self-managed superannuation funds (SMSFs). “We know these arrangements are in the market, and we have seen a number being promoted from Vanuatu,” he disclosed.

Under these arrangements, it is believed, certain life insurance policies are marketed as qualifying for concessional tax treatment on proceeds from the policy or tax deductions on fees paid under the policy.

However, these policies may not qualify for such benefits, which include capital gains tax exemption and the special rules applicable to reversionary bonuses paid from life insurance bonds, while the self-managed superannuation funds may also breach the regulations for complying funds.

“People considering these arrangements should be aware their tax affairs will be closely examined by ATO, in addition to potential action by other government agencies as part of Project Wickenby,” D’Ascenzo added.

People who are unsure about their situation are advised by the ATO to seek independent advice or obtain a private ruling on their individual circumstances from the Tax Office. Those who have participated in these arrangements and contact the ATO before they are contacted for an audit will be entitled to a reduction in any penalties that may apply.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at and a description of the report can be seen at

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