sfMaintaining Insurance Flexibility

The ATO has come out and clarified their view on the treatment of insurance premiums and payouts. They believe that if the premium is expenses directly from a member’s account then the proceeds must go to the member’s account upon an insurable event occurring.

It can often be very useful for a fund not to have to automatically put all insurance proceeds directly to the member’s account eg., to fund an anti detriment payment. If your trust deed allows (and this is not always the case as many deeds specifically state that proceeds from policies held must be put to the account of the person on whose life/disability etc was insured) you may choose to hold the proceeds in a reserve so that you can choose how to apply them. What the ATO’s position says is that if you want this ability, you will need to expense the cost of insurance directly from the super fund’s P&L and not attribute it to any particular member. This shouldn’t be a problem for ‘family’ SMSFs as differentials in insurance cost still relate to the financial position of the same family. It could however pose slightly more issues for businesses where otherwise unrelated parties share a fund.