Global News Brief

The Minister for Financial Services, Superannuation and Corporate Law has announced an amendment will be made to tax law to provide transitional relief to superannuation funds. This announcement aims to clarify some uncertainties that have arisen as a result of the “Better Super” rewrite of the tax law regarding the deductibility of total and permanent disablement (TPD) insurance premiums.

The amendment will defer the introduction of the new provisions in the tax law governing deductibility of insurance premiums for disability superannuation benefits to July 1, 2011. The amendment will ensure that the current industry practice of claiming a deduction for all TPD insurance premiums will continue to apply until June 30, 2011. From that date, funds will only be able to claim a tax deduction to the extent the insurance policies provide benefits that fall within the new definition of "disability superannuation benefit."

Key Details

The main implications of the Minister’s amendment are:

• From July 1, 2011, the law will revert to insurance premiums only being deductible to the extent that 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.
• While this does provide some clarity, at least in the short term, for funds, the limitation on the types of benefits for which a deduction can be obtained after July 1, 2011 may require changes to policies and fund trust deeds and may adversely impact members, particularly where an “own occupation” definition of TPD is currently provided.

Background

The Income Tax Assessment Act 1936 provided a deduction for "disability benefits." This term was not defined, and so common practice had been to claim a deduction for all TPD insurance premiums.

Under Better Super, superannuation provisions in the 1936 Act were repealed and rewritten into the Income Tax Assessment Act 1997. The 1997 Act now includes a new definition of "disability superannuation benefit" that is narrower and more difficult to satisfy than the definitions of TPD used in many insurance policies that pay out benefits in a wider range of circumstances including loss of limbs, loss of sight and inability to perform specified activities of daily living. Very few insurance policies have a definition of TPD that replicates the new definition of "disability superannuation benefit."