Draft Taxation Determination

TD 94/D52

Income tax: can a premium paid by an employer on a trauma insurance policy in respect of employee be an allowable deduction to the employer?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 95/42.

FOI status:

draft only - for comment

Preamble

1. Yes, where the premium is paid:

(a)

for a revenue purpose (as discussed below); or

(b)

on a policy owned by the employee and the payment by the employer is made as part of the employee's remuneration.

2. A revenue purpose would exist where any benefit expected to be obtained by the employer under the policy was to cover the loss of profit, either on account of reduced income or increased expenditure, arising as a result of the loss of the employee through the occurrence of the insured event or condition under the trauma policy. There needs to be a nexus between the amount of the insurance benefit and the expected quantum of lost profits. A benefit received in these circumstances would constitute assessable income to the employer under subsection 25(1) of the Income Tax Assessment Act 1936 (the Act).

3. Although the amount of a premium paid as indicated in subparagraph 1(b) above would be an allowable income tax deduction to the employer under subsection 51(1) of the Act, it would also constitute an 'expense payment fringe benefit' on which fringe benefits tax is payable: Fringe Benefits Tax Assessment Act 1986, section 20.

Commissioner of Taxation
19 May 1994

References

ATO references:
NO
BO Insurance Industry Cell

Related Rulings/Determinations:

TD 94/D49
TD 94/D50
TD 94/D51
TD 94/D53

Subject References:
life assurance company
trauma insurance policy
accident & disability insurance policy

Legislative References:
ITAA 25(1)
ITAA 51(1)
FBTAA 20