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:
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:
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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