It was a generally held view that premiums paid for TPD policies via a super fund were a fully deductible expense to the fund. This was up to 2008 when the ATO challenged this position.
The ATO draft ruling TR 2010/D9 outlined their view that full deductibility of TPD premiums should only be available if the TPD policy definition was consistent with the definition of the 'disability superannuation benefit'.
This definition is essentially an "any occupation" definition which requires the insured to be unable to be employed in a position for which they are suited by way of education, training or experience.
So where does this leave TPD policies with an "own occupation", "homemaker" or "activities of daily living" definition? For example under an "own occupation" TPD policy the insured may be unable to conduct their current occupation but may well be able to work in another position they are suited by way of education training or experience.
The ATO provided transitional provisions which allowed full deductibility for all TPD definition types up to 30 June 2011. From 1 July 2011, where the TPD definition does not meet the "any occupation" definition and the insured's policy does not specify the deductible portion of the premium, the super fund must either undertake one of the following with regards to the TPD premium:
- Obtain an actuarial certificate or,
- Use a percentage specified in the regulations
The percentages specified in the regulations are as follows:
| TPD Definition Type | Deductible portion of premium |
|---|---|
| Any Occupation | 100% |
Any Occupation including one or more of:
|
100% |
| Own Occupation | 67% |
Own Occupation including one or more of:
|
67% |
| Own Occupation TPD bundled with Life cover | 80% |
Own Occupation TPD bundled with Life cover including one or more of:
|
80% |
I have seen on a number of occasions clients structuring "own occupation" TPD via their self managed superfund as the premiums are funded from a "tax free" environment. Apart from the condition of release issue this may create and the tax payable on the TPD proceeds, the tax effectiveness of this strategy is becoming less attractive. Coupled with this, the fact that if you are under 55 the maximum concessional contribution limit is $25,000 per annum means you are potentially eroding your wealth accumulation ability by the insurance premiums. You should examine whether TPD cover via super is the appropriate strategy for them.
For a comprehensive overview of TPD via super keep an eye out for our upcoming video.
By: Mark Everingham – Personal Risk Professionals
