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Taxation Implications:

Taxation Implications of Policy Ownership

Income Tax

Capital Gains Tax

 

CGT Exemptions:

CGT Exemptions for Insurance

2015 Amendments

Death Benefits

Non-Death Benefits

Terminal Illness

 

Methods of Policy Ownership:

Ownership Implications

Cross Ownership

Self Ownership

Trust Ownership

Super Buy/Sell

 

Buy/Sell Cover:

Implications for Buy/Sell Cover

Cross Ownership

Self Ownership

Related Party Vendors

Deemed Dividends

Risks If No Agreement

Trust Ownership

Super Buy/Sell

Origins of Self-Ownership

 

Debt Reduction Cover:

Implications for Debt Reduction Cover

Cross Ownership

Self Ownership

Trust Ownership

Bank Ownership

 

Third Party Payments:

Implications for Promises to Distribute Insurance Proceeds to Third Parties

 

Commercial Debt Forgiveness:

Commercial Debt Forgiveness

Cross Ownership

Self Ownership

Trust Ownership

 

Super Fund Ownership:

Super Fund Ownership

Tax Disadvantages

Cost Disadvantages

Other Disadvantages

Geared Premium Funding

 

Aggregation onto One Policy:

Methods of Aggregation

 

 

 

 

 

 

 

 

Cross-Ownership of Buy/Sell Cover

 

Traditionally, each Life Insured's Buy/Sell Cover has been owned by the Purchasers (i.e., the Proprietors other than the Life Insured).

This method of ownership is commonly called "Cross-Ownership" (because someone other than the Life Insured owns the Policy).

 

Diagram

Click here to see a diagram that illustrates the Cross-Ownership of Buy/Sell Cover and Debt Reduction Cover.

 

Death Benefit

Cross-Ownership will normally obtain a CGT exemption for the Death Benefit.

 

Non-Death Benefits

Unfortunately, Cross-Ownership will result in a CGT liability in the case of Non-Death Benefits.

 

Implications for Policies that Bundle Death and Non-Death Benefits

Because Non-Death Benefits are usually bundled with a Death Benefit under the one Policy, there is a risk that Cross-Ownership of a Policy will result in a CGT liability.

 

Normal Methods of Ownership

As a result, the normal method of ownership of all Buy/Sell Insurance is now Self-Ownership or Trust Ownership.

It is no longer normal for the Business or the Purchasers to own Buy/Sell Insurance (“Cross-Ownership”), because of the CGT liability with respect to Non-Death Benefits. 

 

Copyright: Clover Law Pty Ltd

 

 

Adviser Tip

Trust ownership is an indirect form of self-ownership.

The Life Insured is the "beneficial owner" for legal and tax purposes under the roof of the Trust.

See more Adviser Tips

 

 

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