Ask an Expert – Claiming tax deductions on super-funded insurance premiums

National Technical Manager

David Glen

Question

I am hoping you can provide me with an explanation relating to insurance premiums paid via a personal super contribution. I understand that the insurance provider will provide the member with the total amount of contributions (premiums) paid in the financial year and enclose a Notice of Intention to claim a tax deduction (NOI) form.

If the member claims part or full amount of the premium as a tax deduction, then my question relates to how is the contribution tax paid? Does the Australian Taxation Office (“ATO”) data match and apply the contribution tax to the super fund recorded with the ATO?

Answer

It is important to separate the two components involved in the scenario outlined above. The first component is the personal contribution which the client makes to the superannuation fund concerned, and the second component is the premium which the Trustee pays to the life insurer for the provision of the insurance cover.

The first component
Payment of the personal contribution

1. The personal contribution is presumed to be a non-concessional (non-deductible) contribution by the client unless the client completes an NOI.
2. On receipt of a valid NOI, the Superannuation Fund Trustee will acknowledge receipt of the NOI.  There are specified formalities and requirements for completion of a valid NOI. If the NOI does not comply with these formalities and requirements, the NOI will be treated as being invalid and the tax deduction will be denied to the client. It is practically difficult to amend a defective NOI, and it is therefore vital that the NOI is properly completed before lodgement with the Trustee of the Superannuation Fund.
3. If the NOI is validly completed, the trustee will acknowledge receipt of the NOI. The client can then claim the tax deduction for the contribution in the tax return. The ATO will not grant the tax deduction if the superannuation fund trustee has not acknowledged receipt of the NOI.
4. The obligation to complete the NOI rests with the client and not the Superannuation Fund Trustee. Clients should therefore alert their tax agent or accountant to the fact that they intend claiming a tax deduction for the personal contribution being made to the superannuation fund. This will allow the tax agent or accountant to complete all NOI requirements and formalities on a timely basis.
5. Many superannuation fund trustees send pro-forma NOIs as a courtesy to their members. Members wishing to claim a tax deduction for their personal contributions should complete the pro forma NOI and lodge it with the Trustee. It is also possible to download a NOI form from the ATO website and complete this form for lodging with the superannuation fund trustee.
6. On receipt of the NOI, the Superannuation Fund Trustee will report the contribution to the ATO.
7. The Trustee is also obliged to include the contribution covered by the NOI in its assessable income. Personal contributions received by a superannuation fund where there is no NOI are treated as non-concessional contributions, and no contributions tax is payable in respect of these contributions.
8. The reporting process and the inclusion of the contribution in assessable income is a matter for the superannuation fund trustee. The client is not involved in this process.

The second component
Payment of the premium

1. The superannuation fund trustee uses the contribution received to pay the insurance premium due to the life insurer. This secures the requisite insurance cover on the life of the client.
2. The superannuation fund trustee claims a tax deduction for all insurance premiums paid by it.
3. The premium payments are reported to the ATO via the tax return of the Superannuation fund Trustee.
4. The client is not involved in the premium payment process. This is a matter for the Superannuation Fund Trustee and the insurer.
5. The client’s concern is to ensure that the Superannuation Fund Trustee secures the requisite insurance cover for the client. Clients and their advisers should seek confirmation from the Superannuation Fund Trustee that the relevant insurance cover has been put in place and that the premium due has been paid.

For more information, please do not hesitate to contact the TAL Technical Team at AskAnExpert@tal.com.au.

Please do not hesitate to contact us if you need to discuss any of the above points.

Our answer is subject to the disclaimer below.

---

Disclaimer

The information contained in this article is general information only and is not intended to be legal, taxation or financial advice. TAL Australia, its subsidiaries, and its representatives have not taken into consideration any individual’s personal circumstances, financial needs, or objectives. If any person is intending to act on the information contained in this article, consideration should be given to the appropriateness of this general information in the light of that person’s own objectives, financial situation, or needs before acting on the information. Persons acting on any matter covered in this article should seek independent professional advice on the application of that matter to their individual circumstances. In relation to any financial product referred to in this article, a copy of the Product Disclosure Statement should be obtained and read prior to making any decision regarding the acquisition that financial product.