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Ruling

Subject: Premiums paid as trustee of superannuation fund of Disability product.

Question 1

Is the insurance policy entered into by the Fund wholly or partly for current or contingent liabilities of the fund to provide disability superannuation benefits for the purposes of subsection 295-460(b) of the ITAA 1997?

Answer

Yes.

Question 2

Is the premium deductible to the Fund under subsection 295-465(1) of the ITAA 1997, and if so, to what extent?

Answer

Yes, to the full extent.

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences on:

Each contract of insurance entered into by the Trustee of the Fund will constitute the commencement of a separate 'scheme' for the purposes of this Ruling.

Relevant facts and circumstances

1. An insurance policy (the Policy) is held by X Ltd as trustee (the Trustee) of a superannuation fund (the Fund) in respect of members of the Fund.

2. Under the Policy the Trustee will only pay a Total and Permanent Disability (TPD) benefit to a member of the Fund if payment is in accordance with the obligations and the rules of the Fund pursuant to the Superannuation Industry (Supervision) Act 1993 (SIS Act). Specifically, TPD benefits are only paid where the insured persons meets the 'any occupation' definition of TPD, and also meets a condition of release under the SIS Act.

3. For taxation purposes the cover provided by the Policy would satisfy the definition of 'disability superannuation benefit' for the purposes of section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)

4. The Trustee proposes to meet the premium payments through the member making contributions into the Fund that are equal to their share of the insurance premiums. Subsequently, a corresponding equal charge/debit is made to the member's account by the Trustee.

5. The premiums are determined prospectively in relation to the period of cover of the Policy. The premiums are based on rate tables constructed for the Policy and have been determined by actuaries on the basis of the risk borne under the Policy.

Assumptions

The policyholder of the insurance policy, the Trustee as trustee of the Fund, will be a complying superannuation fund for the purposes of the Act.

Benefits under the policy are provided wholly in respect of disability benefits, upon the certification by at least 2 legally qualified medical practitioners that the insured is unable to be gainfully employed in any occupation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 295-460

Income Tax Assessment Act 1997 Section 295-460(b)

Income Tax Assessment Act 1997 Section 295-465

Income Tax Assessment Act 1997 Subsection 295-465(1)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Question 1

Subsection 295-465(1) provides:

"A complying superannuation fund can deduct the proportions specified in this table of premiums it pays for insurance policies that are (wholly or partly) for current or contingent liabilities of the fund to provide benefits referred to in section 295-460 for its members. It can deduct the amounts for the income year in which the premiums are paid."

Section 295-460 specifies the relevant benefits, which inter alia include a disability superannuation benefit, which is defined in section 995-1 as:

"a superannuation benefit if:

a) the benefit is paid to a person because he or she suffers from ill health (whether physical or mental); and

b) 2 legally qualified medical practitioners have certified that, because of the ill health, it is unlikely that the person can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training."

Pursuant to the then Assistant Treasurer's press release of 13 October 2009, 'Transitional relief for superannuation funds: Deductibility of disability benefit premiums', the meaning of the words 'gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training' in paragraph (b) of that definition was further clarified to limit the scope of the deduction under subsection 295-465(1) to premiums for insurance providing benefits where the insured is unable to find work in any capacity (i.e. 'any occupation' disability insurance).

Under the Policy, TPD benefits are only paid where the insured persons meets the 'any occupation' definition of TPD, and also meets a condition of release under the SIS Act. Whilst the Policy states that the insured must also meet the definition of permanent incapacity under the SIS Act before receiving a benefit, the term is actually defined in subregulation 6.01(2) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) as:

"permanent incapacity, in relation to a member, means ill-health (whether physical or mental), where the trustee is reasonably satisfied that the member is unlikely, because of the ill-health, to engage in gainful employment for which the member is reasonably qualified by education, training or experience."

'Permanent incapacity' is a condition of release in Schedule 1 to the SISR. As a fund is prohibited from paying a benefit to a member unless the member has met a condition of release, it is considered that a fund's current or contingent liabilities to provide a disability superannuation benefit as referred to in paragraph 295-460(b) of the ITAA 1997 must be related to the permanent incapacity condition of release. The condition that a trustee of a fund must be reasonably satisfied of to meet the definition of 'permanent incapacity' under the SISR is identical to that which two medical practitioners must certify for the payment of a disability superannuation benefit.

It is clear from the terms of the Policy that the Policy only provides benefits to a policyholder upon an illness or injury of the insured, and only where such injury renders the insured unable to continue to work in any occupation. Thus, the Policy can only ever give rise to a payment to the Fund that would be a benefit referred to in paragraph 295-460(b) of the ITAA 1997.

It is therefore considered that the Policy entered into by the Fund is wholly for the current or contingent liabilities of the Fund to provide a disability superannuation benefit as defined in paragraph 295-460(b).

Question 2

Subsection 295-465(1) provides:

"A complying superannuation fund can deduct the proportions specified in this table of premiums it pays for insurance policies that are (wholly or partly) for current or contingent liabilities of the fund to provide benefits referred to in section 295-460 for its members. It can deduct the amounts for the income year in which the premiums are paid."

Item 5 of the table in subsection 295-465(1) states that a fund can deduct that part of a premium that is specified in the policy as being wholly for the liability to provide benefits referred to in section 295-460 of the ITAA 1997.

Paragraph 14 of Taxation Ruling TR 2012/6 states:

"A complying superannuation fund can claim a deduction for an insurance premium on a TPD insurance policy paid for by the fund, if there is a connection between that payment and a current or contingent liability of the fund to provide a 'disability superannuation benefit' referred to in paragraph 295-460(b) to its members."

The premium paid under the Policy is specifically referable only to benefits under the Policy, where such benefits relate solely to disability resulting in a loss of ability to work in any occupation. Therefore, the whole amount of the premium paid by the Trustee would be specified to be for the provision of disability superannuation benefits (subsection 295-460(b)) to its members who choose to take up the Policy. Accordingly, the whole amount of the premium is therefore deductible to the Trustee, as trustee of the Fund, under subsection 295-465(1).

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