Insurance in super
Taxation of insurance premiums
The deductibility of insurance premiums for super fund trustees is shown in the following table.
|Insurance type||Tax treatment of premiums|
|Policy owned outside super||Policy owned by super trustee|
|Life cover (including terminal illness)||Not deductible1||Deductible to the fund2|
|TPD cover||Not deductible1||Any occupation cover: generally fully deductible to the fund2
Own occupation cover: Proportion of premium used to fund 'any occupation' component generally deductible to the fund.2 Remainder not deductible to the fund.
|Income protection||Generally deductible to the policy owner||Deductible to the fund2|
|Trauma cover||Not deductible1||Not deductible to the fund|
1 Excludes situations where cover is held for a revenue purpose or where cover is paid for by the employer but owned by the individual.
2 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).
Alternative - 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.
If made, this election applies to all fund members. The tax deduction available is calculated as follows:
|Benefit amount x future service days/total service days
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.
This requirement does not apply where the future service deduction is claimed as a result of income protection benefits being paid from the fund.
Last modified: Wednesday, July 24, 2019