Insight Accounting Pty Ltd is a CPA Practice

Beaconsfield (03) 9707 0555

Cranbourne (03) 5995 2700

Pakenham (03) 5940 4555

Warragul (03) 5622 1793

Insurance cover through your SMSF can be tax deductible

Buying insurance within an SMSF can give access to deductible expenses that would otherwise not be available, as some insurance premiums, such as for life insurance (which typically cannot be claimed as deductions by individuals for income tax purposes) may be available as tax deductions for the SMSF.

The same concession applies for any super fund, but the deductibility is available to the fund itself — therefore previous members of retail or industry funds who subsequently set up their own SMSF may not be aware of the deductibility of insurance premiums.

On top of this, life insurance payouts made to death benefit dependants of the deceased via a super fund are tax-free, regardless of whether a tax deduction for premiums has been claimed or not. Note however that insurance benefits paid to a non-dependant may attract tax, and death benefits can only be received as a lump sum.

The forms of insurance open to trustees to buy via an SMSF are:

– life insurance

– total and permanent disability insurance (TPD)

– income protection (IP) insurance

The rules about the deductibility of premiums for life insurances distinguish between the premiums paid to provide a benefit and premiums that have a savings element – as is the case with certain variable life policies that build a cash value. No deduction is available for the proportion of the premium that supports this investment element.

The one essential however is that policies must be held in the trustee’s name, and the fund must be the sole beneficiary of the policy. And it is prohibited from transferring existing life insurance policies of related parties to the SMSF — the law prohibits a super fund from acquiring an asset from a “related party”, and an insurance policy is a financial asset.

Another point to note regarding the income protection insurance is the “occupation clause”. If the income protection insurance will pay benefits in cases where the insured becomes disabled and consequently is unable to perform work in their own occupation, then premiums for such insurance will only be partially deductible. In contrast, if the matter was about not being able to work in any occupation, which is a more restrictive clause, then the deduction for full policy is generally available.

Note that other forms of insurance, such as health insurance, may not fit with the “sole purpose test” and therefore it would be inappropriate to hold such policies in an SMSF. However the ATO has ruled that trauma insurance is consistent with the sole purpose test (although the cover must be held for trustees/members only).

 

 

DISCLAIMER:All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Taxpayers Australia Incorporated, each of its directors, councilors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Taxpayers Australia Inc (ABN 96 075 950 284).


Insight Accounting Pty Ltd is a CPA Practice

Liability Limited by a scheme approved under Professional Standards Legislation

© Copyright 2014 - Insight Accounting | Accountant Cranbourne, Beaconsfield, Pakenham, Berwick, Narre Warren, Officer, Warragul, Drouin, Tax Returns South East Melbourne | Disclaimer | Privacy Policy | Contact