Edited version of private advice

Authorisation Number: 1012627275909

Ruling

Subject: Insurance premiums

Questions

1. Can the insurance policy held by the former superannuation fund in respect of the life of the former member, who is now the member of a self-managed fund (SMSF), be treated as being owned by the SMSF?

2. Are the premiums paid by the member in their individual capacity able to be brought to account as contributions to, and subsequently expenses of, the SMSF?

3. If the answer is yes, in what income year (or income years) are the contributions and subsequent expense to be accounted for?

Answers

1. No.

2. No.

3. No.

This review applies for the following period

Year ended 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

In the minutes of the meeting of directors of a private company (the Company), held over 30 years ago, it was resolved that the Company establish a superannuation fund to provide certain benefits for officers and employees of the Company. During this meeting the name of the superannuation fund (the Fund) was resolved. Several persons, which included Taxpayer 1, Taxpayer 2 (the spouse of Taxpayer 1) and Taxpayer 3 (the child of Taxpayer 1 and 2) were invited to become members of the Fund.

In meetings within a short time of each other:

_ Meeting 1 - the Company resolved that a term life insurance would be taken out to cover the members of the Fund; and

_ Meeting 2 - it was noted he Company had effected the term life insurance policies, as from that date, to cover the members of the Fund.

You have provided an annual statement from an insurance company in respect of a life insurance plan (the Policy) for a period during the 2013-14 income year which shows:

_ Plan Start Date: A date more than 20 years ago;

_ Plan Owners: the Company;

_ Insured Person: Taxpayer A.

You state the Policy replaced the previous life insurance policy that was effected over 30 years ago.

In 2003, a reconstruction of all entities occurred, due to a disagreement between Taxpayer 1 and Taxpayer 2 (the child of Taxpayer 1). During this time a self managed superannuation fund (the SMSF) was established with Taxpayer 1 and Taxpayer 2 as the members and Company A as the corporate trustee of the SMSF.

Around the same time, a new company (Company B) was established and became the new corporate trustee of the Fund.

During the end of the 2002-03 income year, the directors of Company B, acting in its capacity as trustee for the Fund, resolved that the requests received from Taxpayer 1 and Taxpayer 2 be approved and that the appropriate transfer of their benefits be prepared, executed and delivered to the corporate trustee of the SMSF. The benefits are shown as follows:

_ an amount in respect of Taxpayer 1's benefits in the Fund;

_ an amount in respect of Taxpayer 2's benefits in the Fund;

_ transferring a number of units in the capital of a specific investment trust for a specified amount;

_ Property 1 owned by Taxpayer 1 and Taxpayer 3 as nominees for the Fund for a specified amount;

_ Property 2 owned by Taxpayer 1 and Taxpayer 3 as nominees for the Fund for a specified amount;

_ Property 3 owned by Company B in its capacity as trustee of the Fund for a specified amount; and

_ the balance of the benefits paid in cash.

At the end of the 2002-03 income year, the directors of the corporate trustee of the SMSF, resolved that the requests received from Taxpayer 1 and Taxpayer 2, to receive their benefits in the Fund from Company B, be approved.

At this time all applicable assets were transferred from the Fund to the SMSF.

At the end of the 2002-03 income year the following occurred:

_ a number of units specified were transferred and executed from Company B, acting in their capacity as trustee for the Fund, to the corporate trustee of the SMSF.

_ for the purposes of the Real Property Act 1900, Property 1 was transferred from Taxpayer 1 and Taxpayer 3 to the corporate trustee of the SMSF.

_ for the purposes of the Real Property Act 1900, Property 2 was transferred from Taxpayer 1 and Taxpayer 3 to the corporate trustee of the SMSF.

_ for the purposes of the Real Property Act 1900, Property 3 was transferred from Company B to the corporate trustee of the SMSF.

Due to an administration oversight the Policy taken out on the life of Taxpayer 1 remained with the Company as Plan Owner, instead of being transferred to the SMSF.

Premium payments were being taken out of the bank account for the Company and have been treated as drawings to Taxpayer 1. These payments were allocated against Taxpayer 1's personal loan account.

Deductions have not been claimed for these premiums in the SMSF.

During the 2012-13 income year Taxpayer 1 passed away.

You have advised that during 2013-14 income year, the insurance company paid out the Policy for the insured person (that is, Taxpayer 1) to the Company.

You are of the opinion that the Policy was set up solely for the benefit of the fund beneficiary and therefore should be treated as being owned by the SMSF.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 295-465.

Income Tax Assessment Act 1997 Section 295-470.

Reasons for decision

Summary

The Policy effected on the life of Taxpayer 1 cannot be treated as being owned by the SMSF. The Policy Owner is the Fund.

Detailed reasoning

A complying superannuation fund that provides death or disability benefits may claim a deduction for a portion of any premiums for an insurance policy related to covering death or disability benefits under section 295-465 or section 295-470 of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 295-465(1) of the ITAA 1997 allows the trustee of a complying superannuation fund a deduction in respect of a premium payable under an insurance policy where the policy is, wholly or partly, in respect of a current or contingent liability of the fund to provide benefits referred to in section 295-460 for members of the fund. As owner of a policy the fund can deduct the amounts for the income year in which the premiums are paid.

The three types of benefits under section 295-460 of the ITAA 1997 are: superannuation death benefits, disability superannuation benefits and certain benefits provided because of the temporary inability of a person to engage in gainful employment. The meaning of superannuation death benefits and disability superannuation benefits are defined in subsection 995-1(1).

In this case the statement from an insurance company in respect of the Policy for a period during the 2013-14 income year, clearly identifies the Company as the Plan owner for the insured member, Taxpayer 1.

From the information provided, the Policy remained with the Company as Plan Owner and was not transferred over to the SMSF when the resolution was made to transfer the other benefits for Taxpayer 1 to the SMSF.

Therefore, the Policy cannot be treated as being owned by the SMSF.