The Australian Taxation Office is allocating resources to investigate whether the tax deductibility of income protection insurance premiums is being claimed appropriately.
Speaking to advisers at the 2018 Synchron Conference last week, ClearView Life’s Jeffrey Scott said the ATO’s focus is related to whether the premium component applicable to a number of optional or ‘add-on’ features offered on retail income protection contracts, which don’t relate directly to the insured income benefit, are eligible to be claimed.
Scott told his audience that the ATO has been asking IP policy owners to justify why they may be claiming a full deduction on elements such as optional benefits packages or specified illness benefits. He said these optional benefits accounted on average for around ten percent of premiums and urged advisers to ensure their clients were not exposed to potential investigation by the ATO.
Scott’s comments were made within a presentation whose main theme was to highlight arguments as to why insurance held inside the superannuation environment isn’t necessarily the best option,.
Scott used examples and case studies that proved his point, which covered areas including:
- Default life insurance in super
- Taxation treatment of life insurance outside super
- Changing superannuation rules
- Superannuation within SMSFs
- Comparable taxation treatment of insurance benefit payments for policies held inside and outside super for death, TPD, terminal illness
One of Scott’s main messages was that, depending on how the insurance policy had been set up, including ownership structures and nominated beneficiaries, it may be possible that the tax deductibility of the insurance premium held inside superannuation may be significantly outweighed by the taxation treatment of the benefit in the event of a claim being paid.
He also pointed out that the highly successful and long-running ‘Compare the Pair’ campaign conducted by the industry superannuation sector never compared life insurance policies and benefits because there were so many circumstances when life insurance held outside of the superannuation environment delivered better premiums and claim benefit options.
Scott urged advisers to “…proceed with extreme caution” when it came to the complexities caused by holding insurance and funding buy sell agreements. “Help fix the mess!” was his message as he pointed out that there had been 4,000 changes made to the SIS Act since 1992.