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Insurance in super

Salary continuance insurance (SCI) comparison

Section: 13.8

Type of policy  Super                                                                                      Non-super
SCI with benefit period to age 65 SCI (employer owns policy) SCI (employee owns policy)
of insurance premium
Premium fully tax deductible to fund trustee provided that the benefits payable under the terms of the insurance policy comply with the requirements* of the SIS Act. Premium deductible to the employer as an expense incurred in the course of running a business. Premium deductible to the employee as an expense incurred in deriving assessable income.
FBT on insurance premium FBT does not apply to super contributions made by the employer to pay for the premium. FBT does not apply provided the employee does not have rights or entitlements to benefits under the contract. FBT does not apply (not an employment benefit).
Capacity to make benefit payment to beneficiary Fund's trust deed, sole purpose test and conditions of release and cashing restrictions*. A contract, such as an employment contract, between the employer and the employee covering the circumstances in which SCI proceeds will be paid to the employee. Part of the contract of insurance.
Assessment of insurance proceeds to policy owner Non-assessable to fund trustee. Assessable to member receiving the payments. Assessable to employer. Assessable to employee - see tax assessment below
Deductibility of benefit payment from policy owner to beneficiary Non-deductible to fund trustee. Deductible to employer. Not applicable.
Taxation of SCI benefit payments SCI benefit payments are not super benefits and are assessed as ordinary income and taxed at marginal income tax rates in the hands of the employee. No 15% tax offset is available.

* These requirements, expressed in the SIS conditions of release and cashing restrictions, are that the benefit must be paid as a non-commutable income stream for the purpose of continuing the gain or reward the member was receiving before the incapacity, for a period not exceeding the period of incapacity. See section 12.4.

Last modified: Tuesday, May 2, 2017