TPD Insurance Deductibility ATO – Are Your Premiums Deductible In Super?
TPD insurance provides a lump sum payment in case you become totally and permanently disabled.
You can purchase your TPD insurance from a private insurance company visit HUMANSERVICE or you could get it through superannuation.
Many people opt to get their TPD insurance coverage through their super for several reasons, including the fact that the premiums are more affordable and you also get to enjoy tax deductions in certain circumstances. Note that TPD insurance premiums are not tax deductible outside superannuation, but the benefit payment is tax-free if paid to the injured person.
Tax deductible premium portions
Initially, superannuation funds could claim full tax deductions on the premiums paid by their members for TPD insurance. However, this changed from 1 July 2011, when the ATO ruling was implemented limiting the portion of TPD premiums that was tax deductible based on the type of policy you had. A deduction could only be claimed on the portion of TPD premiums that related to the provision of benefits that strictly met the definition of superannuation disability benefit.
In order for a total and permanent disability payout to qualify as a superannuation disability benefit, it has to be paid as a result of the insured’s ill health, with two legally qualified medical practitioners certifying that it is unlikely for the person to ever be gainfully employed in an occupation for which he or she is reasonably qualified. If a TPD insurance policy provides benefits in a broader range of circumstances than those of a superannuation disability benefit, the premiums are only partly tax deductible. An actuarial certificate was required to determine the portion of the premiums for which a tax deduction could be claimed. It is worth noting that such an actuarial certificate came at a cost.
A TPD any occupation policy, in which a person only receives benefits if he or she can never be employed in any occupation, is considered to meet the superannuation disability benefit definition and so the premiums remained fully deductible. On the other hand, a TPD own occupation policy, in which a person receives benefits if he or she can never be employed in his or her own occupation, is considered to be a broader definition of disability than that of superannuation disability benefit. As such, an actuarial certificate was required to determine the portion of the premiums that were tax deductible.
On 5 October 2011, regulation amendments prescribing the deductible percentages of TPD premiums held through superannuation funds were made. Superannuation funds no longer require an actuary to determine the deductible portion of TPD premiums in many cases. TPD any occupation policy premiums remain fully deductible at 100 percent, while TPD own occupation policy premiums are 67 percent deductible. However, if you bundle your TPD own occupation with your death cover in superannuation, the deductible portion increases to 80 percent. Read: How to stop student loan harassment
The definitions included in your TPD insurance will affect your eligibility for an insurance deduction based on ATO provisions (TPD Insurance Deductibility ATO). As such, it is important to speak with a financial expert so you can be sure whether taking out your TPD insurance policy through superannuation would be beneficial in the end.