What are the tax implications of Life 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 | None | No | No, unless the recipient is not the original beneficial owner and acquired the policy for consideration’ |
| 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 (provided a term insurance policy is used)” | Yes – the benefits are assessable to the company, trustee of a trust, partnership or sole trader at the applicable tax rate (provided a term insurance policy is used) | No |
| Where a company, trustee of a trust, partners in a partnership or sole trader owns the policy for Asset (debt) protection purposes | None | No | No, unless the recipient is not the original beneficial owner and acquired the policy for consideration’ |
| Where the trustee of a superannuation fund owns a policy on the life of a fund member |
The Trustee may be able to claim the premium as a tax deduction
Note: These super contributions will count towards the member’s concessional contribution cap. |
If paid as a lump sum:
Payments to non-dependants will be subject to tax as follows:
If paid as an income stream, the income payments will be tax-free if the deceased (or the recipient) is aged 60 or over. Otherwise, the income payments less any tax free component will be taxable at the recipient’s marginal rate (less a 15% pension tax offset) until they reach age 60 from which time they will be tax-free.
Note: Only certain dependants are able to receive a death benefit as an income stream, These include a spouse, children under age 18, financially dependent children aged between 18 and 25, other financial dependants (excluding children), disabled children and people in an interdependency relationship with the deceased fund member. |
Note: This taxation information is based on MLC’s understanding of current legislation and Australian Taxation Office practice as at 1 July 2012.
Our comments are general only. The taxation treatment may vary according to your individual circumstances and may not apply in all cases.
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