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Taxation of super funds

Deductions

Section: 6.3

Taxpayers (including complying superannuation funds) are generally able to claim expenditure as a deduction where:

  • it was incurred in the course of gaining or producing assessable income
  • it was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income
  • it relates to the cost of managing their tax affairs.

Where investment related expenditure is incurred by a complying superannuation fund in the course of gaining or producing both assessable income and non-assessable income (because the fund has some members with accumulation interests and some members with retirement phase income stream interests), only a portion of the expense is tax-deductible.

There are also tax deductions specifically available to complying superannuation funds in relation to insurance discussed below.

Insurance premiums

A complying superannuation fund can claim a tax deduction for the cost of premiums paid for insurance cover used to provide:

  • death benefits
  • terminal illness benefits
  • disability superannuation benefits, or
  • temporary disability benefits paid in the form of an income stream.

This generally allows a complying superannuation fund to claim a tax deduction for premiums paid for life insurance (including terminal illness), TPD insurance and income protection insurance.

However, premiums paid on some TPD and income protection policies taken out prior to 1 July 2014 may not be fully tax-deductible. A tax deduction applies to the extent that the policy is for a liability of the fund to pay the member/LPR/dependants a death, terminal illness or disability super benefit (including temporary disability benefit). In addition, premiums paid for pre- 1 July 2014 trauma insurance policies are not tax deductible.

Future service deduction

Instead of claiming a tax deduction for insurance premiums during a financial year, a fund trustee can elect instead to claim a tax deduction for the future service portion of eligible benefits (consisting at least partially of insurance proceeds) that it pays out, including:

  • a superannuation lump sum death or disability benefit
  • a superannuation income stream death or disability benefit
  • a series of income protection payments.

A trustee can elect to apply the future service deduction instead of claiming a tax deduction for insurance premiums in any financial year (even if deductions have been claimed for premiums in previous years). However, once this election is made, it is generally irrevocable and applies in all future years.

Where insurance proceeds are paid out as a death or disability benefit, the trustee can only claim this future service deduction if the benefit is paid as a consequence of the member terminating employment. In practice, this requirement may render the deduction difficult to claim in most cases.

Last modified: Wednesday, July 24, 2019