Taxation Determination

TD 95/42

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

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FOI status:

may be releasedFOI number: I 1014474

1. Yes, where the trauma policy is:

(a)

owned by an employer;

(b)

the employer is the beneficiary of the policy;

(c)

the premium is paid for a revenue purpose; and

(d)

the purpose of the policy is to advance the business ends of the taxpayer;

then the premium is deductible under subsection 51(1) of the Income Tax Assessment Act 1936 (the Act).

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 Act.

Commissioner of Taxation
9 August 1995

Previously issued as Draft TD 94/D52

References

ATO references:
NO Insurance Industry Cell; NAT 95/5952-3

Related Rulings/Determinations:

TD 95/39;
TD 95/40;
TD 95/41;
TD 95/43

Subject References:
accident and disability insurance policies;
life assurance companies;
trauma insurance policies;

Legislative References:
ITAA 25(1);
ITAA 51(1)