What are the tax implications of Critical Illness insurance (when the benefit is paid as a lump sum)?
| Scenario | What tax concessions are available? | Are the benefits assessed as income? | Are the benefits subject to Capital Gains Tax? |
| Where an individual owns the policy on their own life and the premiums are paid by the individual for personal protection purposes | None | No | No, so long as the person receiving the insurance benefit is the life insured or a defined relative’° of the life insured |
| Where an individual owns the policy on their own life and the premiums are paid by the individual’s employer | The employer may be able to claim the premiums and related fringe benefits tax (FBT) as a tax deduction. | No | (No as above) |
| Where a company, trustee of a trust, partners in a partnership or sole trader owns the policy for Revenue protection purposes | The company, trustee of a trust, partnership or sole trader may be able to claim the premiums as a tax deduction. | Yes – the benefits are assessable to the company, trustee of a trust, partnership or sole trader at the applicable tax rate | Yes – if the recipient is not the life insured or a defined relative of the life insured. However, the capital gain is reduced by the amount included as assessable income. |
| Where a company, trustee of a trust, partners in a partnership or sole trader owns the policy for Asset (debt) protection purposes | None | No | Yes – if the recipient is not the life insured or a defined relative’° of the life insured |
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