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Taxation Implications: Taxation Implications of Policy Ownership
CGT Exemptions:
Methods of Policy Ownership:
Buy/Sell Cover: Implications for Buy/Sell Cover
Debt Reduction Cover: Implications for Debt Reduction Cover
Third Party Payments: Implications for Promises to Distribute Insurance Proceeds to Third Parties
Commercial Debt Forgiveness:
Super Fund Ownership:
Aggregation onto One Policy:
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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.
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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.
Ian Gray travels to most capital cities regularly throughout the year and is available for Meetings. Please click here to see his availability in Brisbane, Sydney, Melbourne, Adelaide and Perth. Please contact us to arrange an appointment or teleconference.
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