Changes to insurance inside your SMSF

New regulations have been released that will now limit the types of insurance that you can hold in your SMSF (well, any super fund actually, not just SMSFs), subject to some transitional provisions.

The overriding theme is that the insurance cover will only be allowed where it is consistent with a superannuation condition of release such as death, a terminal medical condition, permanent incapacity, and temporary incapacity.

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Draft regs on TPD insurance premium deductions

Treasury have just put out the draft regs on how much of each type of TPD definition will be tax deductible when taken out inside a SMSF:

TPD any occupation :  100%

TPD any occupation with one or more of the 100 following inclusions: 100%

(a) activities of daily living;
(b) cognitive loss;
(c) lossoflimb

TPD own occupation : 67%

TPD own occupation with one or more of the  following inclusions: 67%

(a)activities of daily living;
(b) cognitive loss;
(c) loss of limb

TPD own occupation bundled with death (life) cover :  80%

TPD own occupation bundled with death (life) cover with one or more of the following inclusions: 80%

(a) activities of daily living;
(b) cognitive loss;
(c) lossoflimb.

Note this updates our previous articles on this subject.

TPD insurance changes – now law, but waiting on final regs

Tax Laws Amendment (2011 Measures No. 4) Bill 2011 received RoyalAssent on 27th June 2011, which deals with the tax deductibility of premiums for TPD insurance in SMSF and is now law.

What the Bill did was introduce legislation which will allow regulations that specify a statutory percentage of disability insurance premiums that a SMSF will be able to claim as a tax deduction.

The idea was to streamline the process for claiming tax deductions for the cost of TPD insurance provided through a SMSF such that the fund will not need to engage an actuary and hence will not bear this additional cost. These arrangements will apply from the 2011-12 income year, on the expiration of the current transitional relief.

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Can a SMSF trustee take out Trauma Insurance for a member ?

Whilst taking out life insurance, or total and permanent disablement insurance for a member is a relatively straightforward issue for trustees of Self Managed Superannuation funds, the issue of Trauma insurance has always been a bit more complicated.

Firstly, there has been the question of whether or not taking out a Trauma Insurance policy would actually contravene the sole purpose test, and secondly, if a trauma policy is paid out then how does this interact with the condition of release provisions.

In April 2010, the ATO Commissioner released a SMSF Determination that cleared up their thinking on this issue. Specifically, the question was raised:
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