• F Death or disability premiums

    Show at F deductions for insurance premiums paid by a complying superannuation fund to provide superannuation benefits upon the death, existence of a terminal medical condition or temporary or permanent disability of the member (as described in section 295-460 of the ITAA 1997).

    A fund may use a variety of life insurance policies to provide these benefits.

    Recent regulatory changes concerning insurance provided by regulated superannuation funds.

    From 1 July 2014 a trustee is prohibited from providing insured benefits that are not consistent with the conditions of release in the Superannuation Industry (Supervision) Regulations 1994 (SISR) for death, terminal medical condition, permanent incapacity and temporary incapacity. The prohibition does not apply to the continued provision of insured benefits to members who joined a fund before 1 July 2014 and were covered in respect of that insured benefit before 1 July 2014 or to the provision of benefits under an approval that has been granted. This may require certain amendments to be made to the fund rules or the rules may be taken to be amended.

    From 1 July 2013, a regulated superannuation fund that did not self-insure on 1 July 2013 is no longer able to self-insure. If on 1 July 2013 the fund does self-insure in relation to a particular risk the fund may no longer self-insure in relation to that risk on and after 1 July 2016. This provides a three year transitional period for funds to move from self-insurance to external insurance arrangements. This may require certain amendments to be made to the fund rules or the rules may be taken to be amended.

    Calculating the deduction

    The fund can deduct the following:

    • 30% of the premium for a whole-of-life policy if all the individuals whose lives are insured are members of the fund; for more information on what a 'whole-of-life policy' is for these purposes see section 295-480 of the ITAA 1997 and ATO Interpretative Decision ATO ID 2009/100 Complying superannuation fund: deductibility of premiums on 'whole-of-life policy' - subsection 295-465(1) of the ITAA 1997
    • 10% of the premium for an endowment policy if all the individuals whose lives are insured are members of the fund; for more information on what an ‘endowment policy’ is for these purposes, see section 295-480 of the ITAA 1997.
    • for a policy that is not a whole-of-life or endowment policy    
      • 30% of the part of an insurance policy premium that is specified in the policy as being for a distinct part of the policy that would have been a whole-of-life policy if it had been a separate policy
      • 10% of the part of an insurance policy premium that is specified in the policy as being for a distinct part of the policy that would have been an endowment policy if it had been a separate policy
       
    • the part of a premium that is specified in an insurance policy as being wholly for the liability to provide certain death, terminal medical condition or disability benefits for fund members
    • the proportion of the premium that is specified in table 4 as being attributable to the liability to provide death or disability superannuation benefits for fund members.
    Table 4: Proportions of insurance premiums that are deductible under item 6, of the table in subsection 295-465(1) of the ITAA 1997 as specified in the Income Tax Assessment Regulations 1997

    For an insurance policy that provides…

    the fund can deduct…

    Total and Permanent Disability (TPD) any occupation cover

    100%

    TPD any occupation cover with one or more of the following inclusions:

    • activities of daily living
    • cognitive loss
    • loss of limb
    • domestic (home) duties

     

    100%

    TPD own occupation cover

    67%

    TPD own occupation cover with one or more of the following inclusions:

    • activities of daily living
    • cognitive loss
    • loss of limb
    • domestic (home) duties

     

    67%

    TPD own occupation cover bundled with death (life) cover

    80%

    TPD own occupation cover bundled with death (life) cover with one or more of the following inclusions:

    • activities of daily living
    • cognitive loss
    • loss of limb
    • domestic (home) duties

     

    80%

    TPD any occupation means insurance against the member suffering an illness or injury that is likely to result in the member’s permanent inability to work in a job for which the member is reasonably qualified by education, training or experience.

    TPD own occupation means insurance against the member suffering an illness or injury that is likely to result in the member’s permanent inability to work in the member’s own occupation (other than in a substantially reduced capacity).

    An actuarial certificate is not required to deduct the premium, or a proportion of the premium, as specified in table 4.

    The fund may deduct a proportion other than that specified in the Income Tax Assessment Regulations 1997, as contained in table 4 for the premium, but to do so must obtain an actuary’s certificate before the date for lodgement of the fund’s tax return.

    For any other insurance policy premium that is not deductible in accordance with the above circumstances, an actuarial certificate is also required to deduct all or a proportion of the premium for a policy that is to provide superannuation benefits upon the death, existence of a terminal medical condition or disability of the member.

    For more information, see Taxation Ruling TR 2012/6 Income tax: deductibility under subsection 295-465(1) of the Income Tax Assessment Act 1997 of premiums paid by a complying superannuation fund for an insurance policy providing Total and Permanent Disability cover in respect of its members.

    A complying superannuation fund may also deduct premiums on insurance policies to replace income during periods of temporary disability.

    For more information, see Taxation Determination TD 2007/3 Income tax: is a deduction allowable to complying superannuation funds, under section 279 of the Income Tax Assessment Act 1936, for insurance premiums attributable to the provision of benefits for members in the event of temporary disability longer than two years?

    If a fund has current or contingent liabilities to provide superannuation benefits upon the death, existence of a terminal medical condition or temporary or permanent disability of a member but does not have insurance coverage (that is, it self-insures), then a deduction is allowable. The deduction is allowable for an amount equal to what the fund could reasonably expect to pay in an arm’s length transaction to obtain an insurance policy to cover these liabilities. An actuarial certificate must be obtained before the date for lodgement of the fund’s tax return for the amount to be deductible. However, there are regulatory changes to self-insurance for regulated superannuation funds. See Recent regulatory changes concerning insurance provided by regulated superannuation funds.

    If an actuary certifies the amount a fund could reasonably expect to pay in an arm’s length transaction to obtain an insurance policy, and

    • that policy covers liabilities of the fund that are broader than those covered in section 295-460 of the ITAA 1997, and
    • the insurance policy is specified in the regulations

    then the fund may deduct so much of that certified amount as specified in table 4.

    Rather than claiming a deduction for insurance premiums paid or an amount under the self-insurance provisions, a complying superannuation fund may choose to deduct (under section 295-470 of the ITAA 1997) an amount based on a formula for payments for the income year for death, terminal medical condition or disability benefits. Deductions for this amount should be included at F.

      Last modified: 15 Jul 2016QC 48112