Under current New Zealand legislation, the proceeds from a life insurance policy are usually tax-free if paid directly to an individual or an estate.
This means that, following receipt of the benefit, the policy owner is not required to declare the amount received to Inland Revenue because it is not assessable income and there is no liability to pay income tax on the amount received.
This is the tax position where the benefit is paid to an individual or an estate. The situation differs where a policy is owned by a company, and the premiums are paid by the company. In that instance the premiums are likely to be tax-deductible for the company, and any benefit paid under the policy would be deemed to be assessable income of the company.
If a company pays the premiums for a life insurance policy on behalf of an individual (such as an employer paying premiums on behalf of an employee), provided the policy is owned by the individual, any benefit paid out under the policy will usually be tax-free to the individual or to the individual’s estate. Please be aware that where an employer pays the premiums on behalf of an employee, and the employee is the policy owner, the premiums are presumptively subject to Fringe Benefit Tax (FBT).
The above is a general summary based on our understanding of current New Zealand tax law, and it should not be construed as personal tax advice. Please contact your tax adviser for detailed advice about your particular tax position.