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Ruling
Subject: Income protection premiums paid through a super fund
Question
Are you entitled to a deduction for the cost of salary continuance cover where it is paid by your employer?
Answer
No
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You have salary continuance cover through your employer.
The policy provides for a disablement benefit to members in the event of a protracted sickness or injury.
The premiums are paid to the relevant insurance broker by your employer.
The premiums are charged to your employer and the policy is owned by them.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 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.
A number of significant court decisions have determined that for an expense to be an allowable deduction:
· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478,
· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and
· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).
A deduction will be available for the cost of insurance premiums if the taxpayer buys insurance against the 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. Smith 81 ATC 4114; 11 ATR 538).
In your case, your employer pays the premiums and as such, it is your employer who has incurred the expense. Therefore as you have not incurred the expense, you are not entitled to a deduction.