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Edited version of private ruling
Authorisation Number: 1011713932234
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Ruling
Subject: Deduction for the income protection insurance
Question
Are you entitled to claim a deduction for the income protection insurance premium which is deducted from your superannuation fund account?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2009
Year ended 30 June 2010
Year ending 30 June 2011
The scheme commenced on
1 July 2008
Relevant facts
Your yearly insurance premium for income protection cover is paid from your superannuation account.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
A deduction will be available for the cost of insurance premiums under section 8-1 of the ITAA 1997, if the taxpayer buys insurance against loss of an income stream for which periodical payments received under the policy would constitute assessable income to the taxpayer, or buys insurance to cover against losses arising as a result of the taxpayer's income producing activities (FC of T v. D.P. Smith 81 ATC 4114; 11 ATR 538).
Members and employers make contributions to superannuation funds to provide retirement benefits for the members. Some funds may provide an ancillary benefit, that is - death or disability benefit or income protection benefit to its members as part of their association with the fund. The fund may insure any contingent liability it has to pay death and disability benefits or the fund may be self insured. Provision of ancillary benefits does not change the fact that the contribution made by the members and employers are for retirement benefits and not for the insurance cover.
Superannuation funds, as part of their operations, allocate their income and expenses to their members. The income earned by the superannuation fund does not form part of the assessable income of the members. Similarly, any deductions allocated to the members are not deductible to the members. They are expenses incurred by the superannuation fund.
It is considered that the fund owns the insurance policy. Therefore, the superannuation fund is the actual taxpayer entitled to a deduction. This is because the expense is incurred by the superannuation fund, not its members. The deduction is claimed against income that is earned by the fund.
In your case, your insurance premiums have been deducted from your superannuation fund account. However, you have not actually purchased the income protection policy. It has been provided for you by your superannuation fund. Your superannuation fund owns the insurance policy and has incurred the expense for the insurance premiums.
You are not entitled to a deduction for the income protection component of the insurance premiums paid from your superannuation fund account under section 8-1 of the ITAA 1997 as you have not incurred the expense.
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