13 October 2009

Transitional Relief For Superannuation Funds: Deductibility of Disability Benefit Premiums

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, today announced an amendment to the tax law to provide transitional relief to complying superannuation funds for the deduction of insurance premiums for disability superannuation benefits (TPD benefits).

The amendments will defer the application of the provisions in the tax law governing deductibility of insurance premiums for superannuation disability benefits to 1 July 2011.

This will ensure that the current industry practice for deducting TPD premiums will apply from 1 July 2004 until 30 June 2011.

From 1 July 2011, the law will revert to insurance premiums only being deductible to the extent the policies have the necessary connection to a liability of the fund to provide disability superannuation benefits to their members and not other types of insurance for which premiums are collected from their members.

As part of the 2007 Better Super reforms, the provisions regarding deductibility of TPD insurance premiums paid by superannuation funds were rewritten and transferred from the Income Tax Assessment Act 1936 to Division 295 of the Income Tax Assessment Act 1997.

The Taxation Office's view of the law is that TPD insurance premiums are deductible only to the extent the policies have the necessary connection to a liability of a fund to provide permanent incapacity benefits and not other types of disability benefits. This interpretation did not change with the Better Super changes, however, industry practice considered that under the ITAA 1936, a premium insuring against any form of permanent disability was fully deductible.

"The deferral of the application of the current provisions will minimise the disruption to the superannuation industry and provide funds with enough lead time to make the necessary administrative changes," Mr Bowen said.

Legislation giving effect to this announcement will be introduced as soon as practicable, following consultation with the industry.

13 October 2009