TPD Insurance Tax Deductible ATO – Understanding The Tax Act

TPD Insurance Tax Deductible

One of the factors that may influence your decision to get your TPD insurance policy through super or directly from an insurance company is the tax deductibility options.

Generally, the premiums you pay for it outside super are not tax deductible.

However, the benefits you would get if you make a successful claim would be tax free. On the other hand, Its premiums paid through a super fund are tax deductible and the benefits for such a claim would include a tax-free portion.

Tax Act

Prior to 1 July 2007, the premiums paid by a superannuation fund or self managed super fund (SMSF) were fully deductible However, changes to the definition of total and permanent disability (TPD) were made by the Australian Taxation Office (ATO) that affected the treatment of premiums for insurance policies. The premiums remained fully deductible as long as the TPD definition provided in the insurance policy matched the new TPD definition. Learn more about TPD Insurance Tax Deductible ATO (Australian Tax Office).

In order to satisfy the new TPD definition, you have to suffer from ill health, either physically or mentally. In addition, two medical practitioners that are legally qualified must certify that you are unlikely to ever be gainfully employed as a result of your ill health. This definition is characterized as an “any occupation” TPD definition since you would have to be unfit for any occupation you could reasonably hold and not just your own occupation. In effect, premiums for TPD are only fully deductible in the case of any occupation TPD policies.

TPD definitions

There are several TPD definitions that are provided depending on the insurance provider click here to know more. “Any occupation” TPD means that you can no longer work in any occupation for which you are reasonably qualified. “Own occupation” TPD means you can no longer work in your current occupation. “Loss of limbs” TPD means that you have lost the use of specified limbs, which is usually in pairs – both arms, both legs, an arm and a leg or both eyes. “Activities of daily living” TPD means you require assistance completing normal personal activities such as dressing, washing or feeding. “Home duties” TPD means you require assistance carrying out daily tasks within the home such as cleaning, cooking, shopping or caring for children.

Tax deductibles

Apart from the any occupation TPD definition, all the rest are considered broader than the Tax Act definition provided by the ATO. As such, only a portion of the premium payments in these cases is tax deductible. Generally, the portion of the premiums that is tax deductible is 67 percent unless the policies are bundled with life insurance – the portion that is deductible increases to 80 percent in this case. Alternatively, you could have an actuary determine the deductible portion of your premium payments. Read: What Is Income Protection Insurance And How Does It Work?

If you are taking out your TPD insurance policy through superannuation, it is important to check the TPD definition in your policy and consider how it compares to the definition in the Tax Act. You should also find out whether your insurer will involve an actuary to certify the deductible portion of your premiums. It may also be helpful to switch to a TPD policy with a favorable TPD definition.