‘Own occupation’ TPD deductibility trap
Estate Planning Update – Summer 2013
There have been numerous developments (including ATO rulings and legislation) affecting the super fund deduction provisions as they apply to TPD premiums over the past few years.
The outcome is that premiums for ‘any occupation’ TPD insurance are typically fully deductible but premiums for ‘own occupation’ TPD are no longer fully deductible in 2011/12 and later income years.
A super fund may have a number of options available to determine the deductible part of a premium for ‘own occupation’ TPD insurance (or other TPD insurance that is not fully aligned with the ‘disability superannuation benefit’ definition).
Unless the insurer defines the deductible portion of the premium in the policy, the fund may either seek an actuary’s certificate (s 295-465 of ITAA97) or have regard to reg 295-465.01 of the Income Tax Assessment Regulations 1997 which prescribes deductible percentages for typical TPD insurance definitions.
Reg 295-465.01, which has been in place since October 2011, provides a backstop or default means of claiming a deduction for trustees who wish to avoid the costs associated with actuarial certification. In the case of ‘own occupation’ TPD insurance, it provides that a premium is 67 per cent deductible.
For clients who require ‘own occupation’ TPD insurance, advisers should consider arrangements which allow the deductible part of the cover to be held inside super and the remainder to be held outside super.