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 Policy | Purpose of Insurance Policy | Premiums Tax Deductible | Lump Sum Benefit Tax Assessable |
| Personal/Spouse/ Joint |
Personal | No | No |
| Keyman | Revenue | Yes | Yes |
| Keyman | Capital Loss | No | No |
| SMSF/Super Fund | Personal | Not all definitions of TPD meet the requirement – please see below for further information | Must 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
TPD Cover inside Superannnation
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
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 Type | Deductible Portion of Premium |
|---|---|
| Any Occupation | 100% |
| 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 Occupation | 67% |
| 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 cover | 80% |
| 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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I have a Life and TPD Insurance Cover of $1.7 million each outside the AMP super with the definition of ‘Own Occupation’ and I do not want to lose that, so how can I claim the 67%-80% tax deduction on the premium by either keeping it outside or shifting it inside the super provided the own occupation definition is not lost?
Thanks Rajeev for your very interesting question. I can completely understand that you would want to maintain your ‘Own Occupation’ definition of your TPD Policy. You essentially can’t claim a tax deduction currently as I am sure you are aware as the TPD Insurance is held outside of your super and therefore if a lump sum benefit is payable to you it would not be taxed.
You have two options you can consider which may have some consequential benefit to you. You could look at ‘Flexible Linking’ where your Life Policy is held within super but your ‘Own Occupation TPD’ is outside super but the policies are linked, which provides discounting to both your premiums and will free up cash flow as your Life Insurance premiums will be deducted out of your superannuation balance plus if you were to claim on the TPD you are not governed by the superannuation ‘condition of release’ rules. Alternatively, you could look at a ‘Split TPD’ arrangement where you have a portion of ‘Any Occupation TPD’ inside your super and a portion of ‘Own Occupation TPD’ outside of your super and of course the Life Insurance inside the super which gives you the linking discount and frees up some cash flow as the Life and ‘Any Occupation TPD’ will being coming out of your super balance.
‘Any Occupation’ premiums are fully 100% tax deductible within superannuation providing the cover meets the definition of the ‘disability superannuation benefit’ which is generally someone who is unlikely to ever work in an occupation in which they are reasonably suited due to their training, education or experience. Unfortunately, as it is after July 1st, 2014 and even if you set up your ‘Own Occupation TPD’ policy before then, you would not be able to change the policy to be funded through your super to claim any tax deductions as there would be a change in the policy ownership and the original policy would have to be cancelled and you would be applying for a new policy.
This link will provide you with further information that you may find beneficial – TPD in Superannuation. Thank You
Hi. Last year $356.44 was discounted in my superannuation for Default Unit Death Premium and $603.00 for Default Unit TPD Premium. Can I claim it as tax-deduction?
Hi Alan
While I can’t provide you with taxation advice (I would contact your accountant to confirm your personal situation) however I can provide you with some general information.
Generally you can’t claim premiums paid by your super fund in your personal tax return as a deduction, however the complying super fund would be able to include the life and TPD premiums as an expense (deduction) within the fund. Therefore the complying fund would generally pay 15% tax on net income of the fund for the year.
Hello, I held a TPD approx 500k policy that had attached salary comtiuance to age 65. It was a group policy setup by a previous employer. Premiums are paid from my superannuation but I am not the policy owner. I receive a monthly benefit paid to me directly from the insurer that I believe holds the policy with the superannuation company. There is a clause in the policy stating that benefit are not reduced by any social security payments
Sadly I became eligible for both from a motorbike accident and payments have commenced and continue to. Untill age 65 or untill I stop being disabled .
I am required to submit a doctor’s certificate (at my own cost) to continue receipt of monthly benefit.
I believe the premiums are deductable as my super money is still mine it was not the standard insurance offered by superannuation company it was to the group policy insurer.
I was required to surrender both policies to reciept TPD payment.
My issue is this:
1. the monthly benefit is being taxed as if it was ordinary income or as if it was standard income protection.
If it is income I should be able to claim the cost to acquire the income which is to from the doctor and a small home office setup
If it is not income I should not be taxed at all. I think it is an annuity to the ATO but it’s not my policy .. I only receipt the benefit and it is not by choice. Isn’t it tax exempt income ?
It’s certainly not ordinary income
I think it should be treated as a component of the TPD lump sum paid in installments which is still not taxed at the marginal rate .
2. I am being told that it is income but I am not being allowed to make any deductions against it because I am not working it was suggested I make a private ruling to determine
Pending
3 Social security have legislation surrounding benefits recieved from friendly societies . Which is what this is … From a registered life insurance company. But they are follow the tax office determine if it’s income or not
As such I am not eligible for pension
Appeal pending
Hi TJ,
I’m so sorry about your current circumstances. Please note we are not tax agents or accountants therefore it would be best to talk to your accountant or tax agent for advice around your specific situation. However, here is some general information that may give you a better understanding of how claims from super typically work:
Generally, receiving your super in regular payments over the time you are unable to work is considered an income stream. Any withdrawals from your super due to temporary incapacity is typically taxed as a super income stream.
It may be helpful for you to seek professional guidance from a financial advisor or tax professional to review your specific situation. They may be able to assist you in determining whether the monthly benefit should be considered income and whether you are eligible for any deductions.