Did the SMSF have insurance to cover its members?
No |
Leave F1 and F2 blank. Go to G1. |
|---|---|
Yes |
Read on. |
Write at F1 and F2, as required, the amount of insurance premiums incurred by the SMSF for 2015–16 for insurance policies that provide cover to enable superannuation benefits to be paid for members.
Deductible insurance premiums - members
Write at F1 the amount that is deductible for insurance premiums to provide superannuation benefits upon the death, existence of a terminal medical condition or temporary or permanent disability of a member:
If in 2015–16 the SMSF purchased or provided any of the following types of insurance, read on to find out what amount the SMSF is able to deduct:
- 'whole of life' insurance polies
- 'endowment' insurance polies
- 'total and permanent disability' cover
- temporary disability
- self-insurance.
A complying SMSF may instead choose to deduct an amount calculated using the formula in section 295-470 of the ITAA 1997 rather than claiming a deduction for insurance premiums paid, or an amount under the self-insurance provisions.
If the SMSF has exempt current pension income this does not affect the amount the SMSF is entitled to deduct for insurance premiums. For more information, see How are expenses treated when an SMSF has ECPI?
Since 1 July 2014, an SMSF trustee can no longer enter into insurance policies to provide 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.
However, this does not apply to the continued provision of insured benefits to members who joined the SMSF, and were covered by that insured benefit, before 1 July 2014 or to the provision of benefits under an approval that has been granted. (For more information see regulation 4.07D of the SISR).
Non-deductible insurance premiums - members
Write at F2, the amount that is not deductible for insurance premiums.
Non-deductible insurance premiums include:
- any insurance premiums paid by a non-complying SMSF
- payments for insurance that covers events other than death, the existence of a terminal medical condition, or temporary or permanent disability (for example, funeral insurance).
For more information, see Subdivision 295-G of the Income Tax Assessment Act 1997External Link.
Example: Insurance premiums for an SMSF, with or without ECPI*
SMSF F is a complying SMSF that provides insurance for its members.
In 2015–16 SMSF F paid $10,000 for insurance premiums as follows:
- $3,000 for death cover
- $2,500 for terminal medical condition cover
- $2,500 for temporary or permanent disability cover
- $2,000 for cover of specified traumas** (such as strokes).
SMSF F reports:
F1 Deductible insurance premiums $8,000
F2 Non-deductible insurance premiums $2,000
Notes:
* The amount of insurance premiums that the SMSF can deduct is not affected by any exempt current pension income.
** This insurance policy started before 01 July 2014. The insurance only covers members who joined the SMSF before 1 July 2014. SMSF trustees are prohibited from obtaining a policy covering trauma insurance that start after 30 June 2014.
End of exampleWhole of life policies
A complying SMSF can deduct 30% of the premium for a whole-of-life policy if all the individuals whose lives are insured are members of the SMSF. For more information see section 295-480 of the ITAA 1997 and Australian Taxation Office Interpretative Decision ATO ID 2009/100.
If the whole-of-life policy is bundled with other types of insurance, the SMSF can deduct 30% of the part of the insurance 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 and all of the individuals whose lives are insured are members of the SMSF.
Endowment policies
A complying SMSF can deduct 10% of a premium for an endowment policy if all the individuals whose lives are insured are members of the SMSF. For more information on what an 'endowment policy' is for these purposes, see section 295-480 of the ITAA 1997.
If the endowment policy is bundled with other types of insurance, the SMSF can deduct 10% of the part of the insurance 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 and all of the individuals whose lives are insured are members of the SMSF.
Total and permanent disability (TPD) cover
TPD any occupation
'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.
A complying SMSF can deduct 100% of insurance premiums for 'TPD any occupation' cover for its members as shown in table 6.
'TPD own occupation'
'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).
A complying SMSF can deduct a portion of insurance premiums for 'TPD own occupation' cover for its members, as shown in table 6.
Actuary certificate
An actuarial certificate is not required to deduct:
- the premium, or a proportion of the premium, as shown in table 6 or
- a percentage of a part of a bundled insurance premium that is specified as being for a policy that would have been deductible if it had been a separate policy.
An actuarial certificate is required to deduct:
- a proportion other than that specified in table 6 or
- an amount for a bundled insurance premium where no amount has been specified for insurance to provide superannuation benefits upon the death, existence of a terminal medical condition or disability of a member.
If an actuarial certificate is required it must be obtained before the date of lodgment of the annual return.
Table 6: Proportions of insurance premiums for TPD cover that are deductible
This table shows the proportions of insurance premiums for TPD cover 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.
The SMSF can deduct: |
100% |
|---|---|
TPD any occupation cover |
100% |
TPD any occupation cover with one or more of the following inclusions:
|
100% |
TPD own occupation cover |
67% |
TPD own occupation cover with one or more of the following inclusions:
|
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:
|
80% |
For information about deductions for premiums for total and permanent disability cover, see Taxation Ruling TR 2012/6.
Temporary disability
A complying SMSF may also deduct premiums on insurance policies to replace income during periods of temporary disability.
For information see Taxation Determination TD 2007/3.
Self-insurance
Since 1 July 2013, an SMSF cannot enter into any new arrangements to provide self-insurance for a member. If the SMSF was providing self-insurance for a member on or before1 July 2013, the arrangement must end before 1 July 2016. For more information see regulation 4.07E of Superannuation Industry (Supervision) Regulations 1994.
If an SMSF self-insures for the payment of superannuation benefits to its members upon the death, existence of a terminal medical condition or temporary or permanent disability, the SMSF:
- can claim a deduction equal to the amount that it could reasonably expect to pay in an arm’s length transaction to obtain an insurance policy to cover these liabilities, and
- must get an actuarial certificate before the date for lodgment of the SMSF's annual return for the amount to be deductible.