David Knox (he/him/his) and his business partner, Skylar (them/they), run a company called Numbers Pty Ltd together. Skylar is the creative brain behind Numbers Pty Ltd. The business has taken out a life and total and permanent disability (TPD) insurance policy on Skylars life so that if they died or became permanently disabled the business would be able to re-pay the loans that were taken out with Skylar as guarantor. Numbers Pty Ltd owns the insurance policy and pays the premiums. Ten months later, Skylar has an accident that leaves them with a total and permanent disability. Numbers Pty Ltd receives the proceeds of the TPD insurance policy.

1. Discuss the tax treatment of the proceeds of this policy.