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Tax deductable insurance premiums?

Where the life insurance is provided through a superannuation fund, contributions made to fund insurance premiums are tax deductible for self employed persons and substantially self-employed persons and employers.

What is not tax deductable.

However where life insurance is held outside of the superannuation environment, the premiums are generally not tax deductible.

For insurance through a superannuation fund, the annual deductible contributions to the superannuation funds are subject to age limits. These limits are indexed annually to movements in Average Weekly Ordinary Time Earnings. For 2004/2005 the limits are:

Insurance Age Range

Annual Insurance Limit

Less than 35 $13,934
35 and less than 50 $38,704
Over 50 $95,980


Insurance Premiums that are tax deductable.

These limits apply to employers making deductible contributions. They also apply to self-employed persons and substantially self-employed persons.

Included in these overall limits are insurance premiums. This means that no additional deductible contributions can be made for the funding of insurance premiums. Insurance premiums can, however, be funded by undeducted contributions.

For further information on deductible contributions see "under what conditions can an employer claim a deduction for contributions made on behalf of their employees?" and "what is the definition of substantially self employed?"

The insurance premium paid by the superannuation fund can be claimed by the fund as a deduction to reduce the 15% tax on contributions and earnings.

Ref: ITAA 1936, Section 279 Is it essential that contributions be paid to fund life insurance premiums?

It is not essential that contributions be paid to a superannuation fund in order to fund payment of insurance premiums. Premiums can be paid from the accumulated benefits in a superannuation account.

Is there a limit to the level of life insurance cover available through a superannuation fund?

There is no limit on the level of death or total and permanent insurance (TPD) cover which can be provided through a superannuation fund. There are however limits on the amount of lump sum benefits which can be paid at concessionally taxed rates. The RBL system applies a concessionally taxed limit of the member's pension RBL on the level of lump sum death benefits.

For most people the concessionally taxed limit is the pension RBL which is $1,238,440 for the 2004/2005 financial year. For those with a transitional pension RBL, the limit will be higher.

Should You Insure Through Superannuation?

When deciding whether to fund life insurance through a superannuation fund, there are a number of factors that need to be considered including:

a) tax consequences;

b) reasonable benefit limits (RBL’s); and

c) estate planning issues.



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