In its submission regarding the 2017-18 federal budget, the FPA said that life, TPD and income protection insurances each incur different tax treatment depending on the type of policy, how it was purchased, who purchased it and for what purpose.
“The FPA suggests that addressing the anomalies and complexities of the tax treatment of insurance would greatly assist in closing the protection gap,” the association said.
“Allowing tax deductibility of insurance premiums for non-super policies will add incentive for Australians to take out life insurances, reducing our documented under-insurance problem in Australia and consequently reducing reliance on government benefits when insurable events occur.”
As a way to reduce complexity, the FPA recommends the removal of taxation on all death benefit proceeds paid from superannuation, regardless of the beneficiary.
It also calls for the removal of untaxed element calculations for all death benefits and additionally, remove all tax on death benefits paid to adult children.
As for TPD benefits, the fully payment accessed under permanent incapacity should be tax-free, the FPA said.
Moreover, the FPA urged Treasury to extend legal professional privilege to financial advisers, saying it is giving accountants a competitive advantage.
The submission states that LPP – the rule that protects communications between legal practitioners and clients from disclosure – was extended to accountants in the 1980s.
During that time, accounting lobbyists argued that the ability for lawyers to claim LPP gave them a competitive advantage when providing taxation advice.
That exemption should be extended to financial planners as well, since they now fall under the registration and governance of the Tax Practitioners Board, the FPA said.
“While there is scope for the ATO to lift the accountants’ exemption, there remains a competitive advantage with accountants having access to this exemption while financial planners do not,” the submission stated.
“The FPA requests an interim measure that financial planners are included in the ATO’s self-imposed accountants’ exemption to ensure there is no commercial advantage where the same advice is being provided by the two different professions.”
