When a life insurance policy has been held by the taxpayer for 10 years or longer, reversionary bonuses received on that policy are tax-free. (A reversionary bonus is the profit earned annually on traditional life contracts on top of the sum-insured.)

For policies held less than 10 years, stipulated amounts are included in the Taxpayers Australia’s assessable income, and a tax offset is available.

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.