Is TPD Insurance Policy Subject To GST?
The Goods and Services Tax (GST) is a value added tax of 10 percent that is applied on most goods and services transactions in Australia.
It was introduced in July 2000 to replace the previous Federal wholesale tax system. Generally, the effects of this tax are felt by all the links in the chain of production, but the consumer ultimately bears the cost.
When a business entity is registered for GST, it will have to pay GST on the goods or services it sells or supplies in the course of its business. However, TPD Insurance GST is not applicable for certain goods and services.
What is TPD insurance?
Total and permanent disability (TPD insurance) is a policy designed to provide financial protection against permanent disability that leaves the insured unable to engage in gainful employment. Total and permanent disability insurance in superannuation fund maybe provided, or you can buy a policy directly from an insurance company. For tax purposes, TPD insurance is considered a financial supply by the ATO (Australian Taxation Office).
Most insurance is considered a taxable supply and GST is taxable in such a case. The insurer has a liability to pay GST and this liability may be passed on to the insured. When this is the case, the insured could claim back any GST cost as an Input Tax Credit from the ATO. However, there are some classes of insurance that do not attract GST. Generally, GST is not applicable to financial supplies, which means that it is not applied to TPD insurance because it is a financial supply.
TPD in super
A TPD insurance policy can be obtained through your superannuation fund. Super funds are generally not allowed to carry out business activities in the usual sense. However, a super may be considered to carry on an enterprise and may be required to register for GST. If a fund’s GST turnover amounts to 75,000 dollars or more, the super must register for GST. This usually applies in the case of super funds that own commercial property. However, even in such a case, TPD insurance is not subject to GST because this type of insurance is considered an input taxed sale that is not counted towards the fund’s GST turnover.
If you hold a TPD insurance policy through your super, your employer contributions to the super are not included in the GST turnover. In addition, your member contributions and insurance premiums do not count in the GST turnover. The supply of TPD insurance by a super to its member is therefore not a taxable supply as far as GST is concerned. Similarly, if the fund takes out TPD coverage for it members from an insurance company, no GST would be payable on the supply of the insurance coverage click here to know more. Read: How to get approval for a Bill/Debt Consolidation Loan?
When purchasing your TPD insurance policy, it is important to pay close attention to the terms and conditions attached to your policy. If you require further information concerning GST or any other taxes in light of your TPD insurance policy, speak to your accountant or financial planner for expert advice.