ASFA said, in its submission to the life insurance inquiry, it is important to consider “the distortive effect of the regulatory settings with respect to the taxation of insured benefits inside and outside superannuation”.
It pointed out that part of lump sum TPD benefits before age 60 and all death benefits to non-dependants paid from super funds are subject to tax at a rate of up to 32 per cent.
Meanwhile, death and TPD insurance payouts made outside super “are generally tax free in the hands of the recipient”, ASFA said.
“While it is more cost efficient to provide death and TPD lump sum insurance through superannuation, the differing tax treatment of benefits paid out can lead to significant differences in the amount of the net benefit received by the member/beneficiaries,” the submission said.
ASFA’s submission to the parliamentary joint committee on corporations and financial services highlighted how the limited nature of the regulatory TPD definition has led to difficult decision-making for funds.
It said there is evidence that framing a person’s medical condition in terms of their disability, as opposed to their ability, can have a harmful effect on their psychological condition.
“The ‘one time’ assessment as to disability can, in some circumstances, act as a disincentive for a member to recover some ability, as this may cause them to miss out on being paid a lump sum TPD benefit,” the submission said.
ASFA should be pushing for legitimate member account expenses such as insurance premiums be removed from Cont Cap limits. These expenses are crippling the member accounting of accumulators
ASFA wants their cake and to eat it to. Life & TPD premiums are ‘tax deductible’ under superannuation ownership [either as contributions if an external fund or as an expense if under a SMSF]. Non-super owned Life & TPD premiums are not. Either ALL Life & TPD premiums become NON-tax deductible irrespective of ownership and thus payable without tax consequences at claim time, or ALL premiums become tax deductible and inevitably taxable in full or part at claim time. The Govt is NOT going to let us have our cake and eat it to!
Did ANY thought go into this submission at all? Life and TPD cover is deductible to the fund but not deductible to the individual.
It’s a pretty simple structure at the moment:
Outside of super – no tax deduction and no tax on the benefit.
Inside of super – deduction for the fund and ultimately the member and therefore tax payable on the benefit with a concession made for life insurance paid to financial dependants.
As it stands today the tax benefit of owning cover inside of super normally outways the tax impact on the proceeds, most of the calculations I’ve done suggest that grossing up the benefit paid for a policy inside of super is still better than owning cover outside of super.
A submission asking the government to give on one hand and not take on the other when any basic comparison shows the tax arrangements for life and TPD in super are already generous is a wasted opportunity to have a more meaningful conversation about making sure more Australians are appropriately insured.