Transitional relief will allow complying superannuation funds to deduct insurance premiums for disability superannuation benefits, known as 'TPD benefits'.
New tax law limits the deductibility of insurance premiums for certain TPD benefits. However, these new transitional measures delay those new limits until 1 July 2011 and give trustees more time to reassess existing TPD insurance arrangements.Nicole Siemensma
The 2007 Better Super reforms introduced new law that limited the tax deductibility of TPD insurance premiums. They are deductible only to the extent that the relevant insurance policies have the necessary connection to a superannuation fund's liability to pay a 'disability superannuation benefit'.
You might be asking, "what does "necessary connection" mean?"
Basically, the current law allows trustees to treat insurance premiums as tax deductible only if:
This is the definition of 'disability superannuation benefit' and is also known as the 'any occupation' definition.
Before this new law was introduced, insurance premiums were fully deductible for any form of permanent disability payment, including disabilities that satisfied the 'own occupation' definition.
The 'own occupation' definition allows TPD payments to be made if a member is unlikely to ever work again in his or her own or normal occupation. An example of this distinction is if a surgeon loses a hand, then:
Effectively, the transitional relief:
It is important to note that the transitional relief will apply once it has been legislated, so for now the law introduced by the 2007 Better Super reforms is still current.
Under the Cleardocs SMSF trust deed, the trustee can provide disability superannuation benefits, but needs to take out an insurance policy with a licensed insurer. The terms of that policy then govern what insurance premiums are payable, what they are payable for (e.g. TPD and death benefits) and, ultimately, whether a tax deduction is available for the relevant insurance premiums.
If a trustee of an SMSF has entered into an insurance policy for the payment of TPD benefits, then it will be prudent:
Based on such a review of the insurance policy:
This transitional relief will be legislated after a consultation period with the superannuation industry. Once legislated (and subject to its wording), the normal industry practice for deducting insurance premiums for any TPD payments will continue to apply till 30 June 2011.
So, watch this space.
From 1 July 2011, superannuation funds will only be able to deduct insurance premiums paid that relate to the payment of a TPD benefit that falls under the 'disability superannuation benefit' and 'any occupation' definitions.
For more information, contact Maddocks on (03) 9288 0555 and ask for a member of the Maddocks Superannuation Team.
You can read earlier ClearLaw articles on a wide range of SMSF topics here.
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Leigh is a partner in the Maddocks Tax & Revenue team.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
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For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.