Are TPD Insurance Premiums Tax Deductible?

Yes, TPD insurance premiums are tax-deductible to your superfund when your super fund owns an Any Occupation total and permanent disablement insurance policy or generally when you have the policy set up as a Key Person policy which provides revenue protection to the business should the key person become totally and permanently disabled.

Published January 7, 2020

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When are TPD insurance premiums tax deductible?

Personal Insurance

Premiums for policies which are personally owned or personal in nature, including policies that are jointly owned, will generally not be tax deductible, while any benefits paid out will not be tax accessible.

Keyman – Revenue Protection

Premiums for Revenue Protection, which protect a businesses revenue due to the loss of a key person, will generally be tax deductible however any benefit payments will be taxable.

Keyman – Capital Protection

Premiums for Capital Protection, which is designed to pay off debts and protect the business in the event a key person who is a guarantor on business loans is required to exit the business, generally does not allow tax deductible premiums while benefits are not tax accessible.

Superannuation

In the past, all premiums for Total and Permanent Disablement Insurance policies taken out through your super fund were fully tax deductible premiums to the fund. Recent changes  in 2011 to the tax law mean that not all TPD Insurance premiums are fully tax deductible when the policy is funded through your super and not all lump sum benefits are taxable.

This is when your tpd insurance premiums can be tax deductible

Ownership of Insurance PolicyPurpose of Insurance PolicyPremiums Tax DeductibleLump Sum Benefit Tax Assessable
Personal/Spouse/
Joint
PersonalNoNo
KeymanRevenueYesYes
KeymanCapital LossNoNo
SMSF/Super FundPersonalNot all definitions of TPD meet the requirement – please see below for further informationMust satisfy condition of release

Please be advised that this is a general guide only and we are not registered tax agents under the Tax Agent Services Act 2009; and if you intend to rely on the advice to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. Please consult your tax accountant or speak to one of our specialists for further information.

Changes in the Tax Law that took effect in 2011

In 2011, the Australian Taxation Office outlined that in order for total and permanent disability premiums to be fully tax deductible, the cover provided must meet the definition of a disability superannuation benefit.

This benefit is defined as a person who is unlikely to ever be able to be gainfully employed in an occupation for which they are suited for by means of training, experience or education.

With this change, those who had the Own Occupation definition would have an issue in receiving fully tax deductible premiums

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TPD Cover inside Superannnation

Any Occupation

Any Occupation

The Any Occupation definition generally defines someone who is totally and permanently disabled and unlikely to ever be able to work in an occupation they are reasonably suited for due to training, education or experience.

As this definition is very similar to the disability superannuation benefit definition above, generally premiums for policies with the Any Occupation definition are fully tax deductible  to your super fund.

Own Occupation

Own Occupation

Policies with the Own Occupation definition are generally defined as someone who is totally and permanently disabled and unlikely to be able to return to their own occupation.

As the Own Occupation definition is broader and does not closely match the disability superannuation benefit definition, generally premiums for Own Occupation are not fully tax deductible to a super fund.

The portion of the TPD Insurance premium that is tax deductible when the policy is funded through a super fund

Policy TypeDeductible Portion of Premium
Any Occupation100%
Any Occupation with one or more of: 1. Activities of daily living
2. Cognitive loss
3. Loss of limb
4. Domestic home duties
100%
Own Occupation67%
Own Occupation with one or more of: 1. Activities of daily living
2. Cognitive loss
3. Loss of limb
4. Domestic home duties
67%
Own Occupation combined with life cover80%
Own Occupation combined with life cover with one or more of: 1. Activities of daily living
2. Cognitive loss
3. Loss of limb
4. Domestic home duties
80%

Source: OnePath Technical Services Bulletin, No. 28, 1 October 2011Lump Sum Benefits & Tax

Lump Sum Benefits & Tax

A common misconception is that all lump sum TPD payments released from a super fund are tax free.

Generally, lump sum benefits paid to those aged 60 and over will be tax free however for those aged under 60, only part of your lump sum benefit will be tax free, with you required to pay tax on the remainder of the benefit.

Please be advised that this is a general guide only and we are not registered tax agents under the Tax Agent Services Act 2009; and if you intend to rely on the advice to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. Please consult your tax accountant or speak to one of our specialists for further information.

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