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Insurance in super

Tax treatment of group insurance

Section: 13.7

Group insurance is available either through a super policy or a non-super policy owned by an employer. Each alternative has various implications that should be understood to ensure that the cover suits the needs of both employer and employees.

All insurance benefits

  Super policy Non-super policy
Ownership
  • The policy is owned by the trustee of the superfund.
  • The policy is owned by the employer.
Lives Insured
  • The lives insured are members of the super fund.
  • The contract of insurance is between the insurer and the employer. Employees are listed as the lives insured.
  • There may be a separate contract between the employee and employer requiring the employer to provide insurance cover as a condition of employment.
Claims
  • When a claim is approved, the insurer pays the proceeds to the trustee (who then distributes them accordingly)
  • When a claim is approved, any proceeds are paid to the employer, who in turn pays the employee and/ or the employee's dependants.

Death benefits

  Super policy Non-super policy
Payment of insurance premium
  • Tax deductible to super fund.
  • Contributions made to fund insurance premiums are subject to the member's relevant contribution cap1.
  • Fringe benefits tax (FBT) not payable
  • Tax deductible to employer.
  • No caps on premiums.
  • FBT not payable2.
Receipt of insurance proceeds
  • Non-assessable to the super fund.
  • Assessable as income to the employer.
Payment of lump sum benefits
  • Made by the super fund to the member's dependants3 or estate.
  • May be increased by an amount to reflect tax paid on contributions (known as anti-detriment payments)4.
  • Non-deductible to the super fund (excludes anti-detriment payments).
  • Payments to tax dependants3 (directly or via the estate) are not subject to tax.
  • Payments to tax non-dependants3 are subject to super benefits tax of either 15%6 or 30%6.
  • Made by the employer to the employee's beneficiaries or estate.
  • Tax deductible to the employer.
  • Payments to tax dependants3 (directly or via the estate) are not subject to tax up to $195,0005, with the remainder taxed at the highest marginal tax rate (Medicare levy may also apply).
  • Payments to tax non-dependants3 are taxed at 30%6 up to $195,0005, with the remainder taxed at the highest marginal tax rate (Medicare levy may also apply).

TPD benefits

  Super policy Non-super policy
Payment of insurance premium
  • Tax deductible to super fund. 7
  • Contributions made to fund insurance premiums are subject to the member's relevant contribution cap1
  • FBT not payable2.
  • Tax deductible to employer.
  • No caps on premiums.
  • FBT not payable2.
Receipt of insurance proceeds
  • Generally non-assessable to the super fund.
  • Assessable as income to the employer.
Payment of lump sum benefits
  • Made by the super fund to the member.
  • Non-deductible to the super fund.
  • Benefit payment may include an increased tax-free component.
  • Taxable component not subject to tax if member age 60 or more.
  • Taxable component subject to super benefits tax if member under age 60.
  • Made by the employer to the employee.
  • Tax deductible to the employer.
  • Benefit payment may include an increased tax-free component.
  • Taxable component under $195,0005 taxed at 15%6 or 30%6, depending upon age of employee.
  • Taxable component over $195,0005 taxed at highest marginal tax rate (Medicare levy may apply).

1. Concessional and non-concessional contributions are subject to caps, see sections 5.2 and 5.4.
2. FBT is not payable on insurance premiums paid by the employer provided the employee is not a party to the insurance contract.
3. For SIS dependants and tax dependants, see section 14.8.
4. A fund may claim a tax deduction for the payment of an increased death benefit, see section 7.7.
5. Employment termination cap amount of $195,000.
6. Depending on whether the taxable component comprises either a taxed element or an untaxed element. Medicare levy may also apply.
7. TPD Insurance premiums are deductible only to the extent the TPD policy has the necessary connection to a liability of a fund to provide disability superannuation benefits. In other words, the ATO view is that a deduction under Subdivision 205-G is only available for premiums paid by a super fund for an 'any occupation policy. Refer to tax ruling TR 2012/6 for more information.

Last modified: Tuesday, May 2, 2017