July 1, 2011 saw a change in the rules surrounding tax deductions for total and permanent disablement (TPD) insurance policies owned by a super fund. The changes ushered in by the Australian Taxation Office mean TPD premiums that come under the definition of “own occupation” are only partially tax deductible. Premiums that relate to the TDP definition “any occupation” are still eligible for a full tax deduction.
The main differences between any occupation and own occupation are:
Any occupation: A circumstance whereby you suffer an injury or illness that prevents you from ever working in an occupation for which you are reasonably qualified. Situations in which “any occupation” benefits would be paid might include loss of eyesight, loss of limbs, reduced cognitive function and physical incapacitation.
Own occupation: A situation where your injury or illness prevents you from carrying out the duties of your specified occupation. You may be able to work in another occupation, or a similar one in a reduced capacity. Because there is broader scope to claim this benefit, the ATO has ruled that these premiums are not fully deductible. These policies will be tax deductible at 67 per cent of the TPD premium or 80 per cent if bundled with life cover.
The ATO ruling was handed down to address the fact that funds were claiming 100 per cent deductions on insurance premiums that did not strictly adhere to the definition of a “superannuation disability benefit”, otherwise known as “any occupation”. To find out more about how these regulations affect you, speak to one of our advisors.