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TPD Insurance

What are the tax implications of Total and Permanent Disability (TPD) Insurance?

 

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 No 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.13 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 incomes.
Where a company, trustee of a trust, partners in a partnership or sole trader owns the policy for Asset (debt) protection purposes None None Yes – if the recipient is not the life insured or a defined relative’ of the life insured
Where the trustee of a superannuation fund owns a policy on the life of a fund member The Trustee may be able to claim a portion of the premium as a tax deduction. In some cases, a deduction of 100% of the premium may be available to the trustee. The portion that is deductible will depend on the terms of the policy and the application of the relevant taxation law.3At the fund member level:

  • Self-employed4 and other eligible people can claim their personal super contributions as a tax deduction.
  • Employees can arrange to make pre-tax (salary sacrifice) super contributions.

 

Note: These super contributions will count towards the member’s concessional contribution cap (see page 26).

If paid as a lump sum:• No tax payable on the Tax Free component

The taxable component is:

  • Taxed at 21.5%6 if under age 55
  • Taxed at 16.5%5 on amounts above $175,00009 if aged of 55 to 59
  • tax-free if aged 60 or over.

 

If paid as an income stream, the income payments will be tax-free if the disabled fund member is aged 60 or over. Otherwise, the income payments less any tax free component will be taxable at the disabled member’s marginal rate (less a 15% pension tax offset) until they reach age 60

No

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Eatons Hill QLD 4037
0406 534 233
Highland Financial Pty Ltd
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Fitzpatricks Private Wealth Pty Ltd ABN 33 093 667 595
Australian Financial Services Licence No. 247 429
Level 5, 4 Martin Place
Sydney NSW 2000

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