Edited version of your private ruling

Authorisation Number: 1012510120966

Ruling

Subject: Complying funds - deductions for insurance premiums

Questions

1. Is the fund entitled to a deduction for insurance premiums it pays in respect of a life insurance policy where the Policy Owner is a member of the fund and the fund is a nominated beneficiary?

2. Are the insurance premiums paid by the fund treated as payment of superannuation income stream benefits to the member who is the Life Insured under the policy and who is in receipt of a transition to retirement income stream?

Advice/Answers

1. No.

2. No.

This ruling applies for the following period

30 June 2014

The scheme commenced on

1 July 2013

Relevant facts and circumstances

The Fund is a complying self-managed superannuation fund.

The members of the Fund are Member 1 and Member 2, both of whom are under age 65.

The Fund's trust deed (the Deed) states that the Trustee must ensure that the Fund is maintained solely for the purpose of providing the benefits described in the deed. These benefits include death benefits, permanent incapacity benefits and temporary incapacity benefits.

Member 1 is the Policy Owner and Life Insured of a life insurance policy (the Policy) and the Fund is the nominated beneficiary under the Policy.

The Policy provides for a payment to:

(a) Member 1 in case of their temporary incapacity;

(b) The Fund on the death of the Life Insured.

The Fund pays a portion of the Policy premiums in relation to the death cover and Member 1, in their own individual capacity, pays the remaining portion of the Policy premiums.

Member 1 is in receipt of transition to retirement income stream benefits from the Fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Section 295-190.

Income Tax Assessment Act 1997 Subsection 295-190(1).

Income Tax Assessment Act 1997 Section 295-460.

Income Tax Assessment Act 1997 Section 295-465.

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

Income Tax Assessment Act 1997 Section 304-10.

Income Tax Assessment Act 1997 Subsection 304-10(2).

Income Tax Assessment Act 1997 Section 307-5.

Income Tax Assessment Act 1997 Section 307-65.

Income Tax Assessment Act 1997 Subsection 307-70(1).

Income Tax Assessment Act 1997 Section 307-125.

Income Tax Assessment Act 1997 Section 307-210.

Income Tax Assessment Act 1997 Section 307-220.

Income Tax Assessment Regulations 1997 Regulation 995-1.01.

Taxation Administration Act 1953 Schedule 1 Section 357-110.

Superannuation Industry (Supervision) Regulations 1994 Schedule 1.

Further issues for you to consider

Not applicable.

Anti-avoidance rules

Not applicable.

Reasons for decision

Summary

The amounts paid by the Fund cannot be described as either pension or annuity payments within the meaning of the Regulations. Therefore, they cannot be regarded as superannuation income stream benefits.

The amounts cannot be regarded as premiums for insurance policies and therefore cannot be deducted.

Detailed reasoning

A superannuation benefit is defined in section 307-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as:

(a) a payment to a person from a superannuation fund because the person is a fund member; or

(b) a payment to a person from a superannuation fund, after another person's death, because the other person was a fund member.

In this case, the Fund pays amounts to a member, which the member uses to pay the insurance premiums for an insurance policy held by that member in their own individual capacity. It is considered that, but for the individual's membership of the Fund, the payments would not have been made to them.

As such, it is considered that the amounts are payments to a person from the fund because the person is a fund member. Accordingly, the amounts in question are regarded as superannuation benefits and superannuation lump sums within the meaning of sections 307-5 and 307-65 of the ITAA 1997 respectively.

If these payments have not been made on the basis of the member satisfying a condition of release specified in Schedule 1 of Superannuation Industry (Supervision) Regulations 1994 (SISR), they will be taxable to the member under subsection 304-10(2) of the ITAA 1997. Subsection 304-10(2) of the ITAA 1997, which deals with superannuation benefits in breach of legislative requirements etc., states:

Include in your assessable income the amount of a superannuation benefit if:

(a) any of the following applies:

i. you received the benefit from a complying approved deposit fund or from an approved deposit fund that was previously a complying approved deposit fund;

ii. the benefit is attributable to the assets of a complying approved deposit fund or from an approved deposit fund that was previously a complying approved deposit fund; and

(b) you received the benefit otherwise than in accordance with payment standards prescribed under subsection 32(1) of the Superannuation Industry (Supervision) Act 1993.

The term 'superannuation income stream benefit' is defined in subsection 307-70(1) of the ITAA 1997 as a superannuation benefit specified in the regulations that is paid from a superannuation income stream. According to regulation 995-1.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997), a superannuation income stream, in the context of a superannuation fund, is either a pension or an annuity paid in accordance with SISR.

Further, section 307-65 of the ITAA 1997 provides that a superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit.

In this case, the amounts paid by the Fund cannot be described as either pension or annuity payments within the meaning of SISR. Therefore, they cannot be regarded as superannuation income stream benefits.

In accordance with subsection 295-465(1) of the ITAA 1997, in a year of income in which they are paid, a complying superannuation fund can deduct a proportion of insurance premiums it pays for insurance policies that are (wholly or in part) for current or contingent liabilities of the fund to provide certain benefits for its members. This would mean that the policy in question is an asset of the fund and that the trustee of the fund is the policy owner.

The benefits to which subsection 295-465 of the ITAA 1997 applies are set out in section 295-460 and include the following:

(a) a superannuation death benefit;

(b) a benefit payable to an individual because of a terminal medical condition;

(c) a disability superannuation benefit; and

(d) benefit consisting of an amount payable to a person under an income stream because of the person's temporary inability to engage in gainful employment.

In the current case, the payment of benefits under the Policy is not a current or contingent liability of the Fund to pay a benefit. Rather, it is a current or contingent liability of the insurance company from which the Policy was purchased.

The amounts being paid out, as noted previously, are superannuation benefits, not insurance policy premiums. Accordingly, the amounts cannot be regarded as premiums for insurance policies within the meaning of subsection 295-465(1) of the ITAA 1997 and, therefore, cannot be deducted under this subsection.