Taxation of Policy Proceeds
21.148. Policy proceeds are in general regarded as a non-income receipt and are accordingly exempt from tax. Exceptions to this arise in the case of certain policies effected by employers on the lives of employees but these are relatively few in number and do not have a significant impact on the overall picture.
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21.149. The actuarial surplus of Australian life insurance companies is distributed in the form of reversionary bonuses—i.e. additions to the sum insured. By virtue of section 26 (i) such reversionary bonuses are exempt from tax in the hands of the policy-owner.