Insurance should have equal tax treatment: ASFA
The Association of Superannuation Funds of Australia believes the benefits of insurance in super can be improved by providing tax treatment equal to non-super arrangements.
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.
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