Deductibility of premiums for TPD cover paid by a SMSF

On 7 July 2012, the Commissioner issued TR 2012/6. The Ruling states that a complying superannuation fund can claim a deduction for an insurance premium on a TPD insurance policy paid for by the fund, if there is a connection between that payment and a current or contingent liability of the fund to provide a ‘disability superannuation benefit’ referred to in s. 295-460(b) of the ITAA 1997 to its members.

The premium paid for the TPD insurance policy may be wholly or partly in respect of the provision of ‘disability superannuation benefits’.

A disability superannuation benefit means a superannuation benefit if:
(a) the benefit is paid to an individual because he or she suffers from ill-health (whether physical or mental); and
(b) two legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the individual can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training. (s. 995-1)

The extent to which the premium will be deductible in a SMSF will depend on:
-the nature and scope of the insured events; and whether the trustee of the fund will have – on the occurrence of the insured events – a current or contingent liability to provide ‘disability superannuation benefits’ to a member pursuant to the terms of the fund’s deed.