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Insurance and Tax Deductibility for SMSFs

 


Those of you with a complying Self Managed Super Fund (SMSF) can arrange for your Fund to own and pay for your life insurance.  In doing so you will not only free up personal cash flow you will also create a tax deduction for your SMSF.  As the SMSF Trustees can claim a tax deduction for insurance premiums, taxable superannuation contributions that are used by the fund to pay premiums will generally avoid tax at fund level.

 While Superannuation Guarantee (SG) contributions can fund these insurance premiums, consideration should be given to an additional contribution to your SMSF to fund premiums.  This will ensure SG contributions are not eroded, while enabling a member to utilise their pre-tax income (packaging), to gain further tax efficiencies from their insurance premiums.  Be aware that concessional contribution caps exist and additional penalty taxes may be payable if these are exceeded. 



As detailed by the ATO in the Guide to self-managed superannuation funds - Deductions

 

‘...Expenses that a complying SMSF can deduct include:

supervisory levy

insurance premiums for death and disability

up to 1 July 2011 insurance premiums paid for a policy insuring against any form of permanent disability are fully deductible

after 1 July 2011, insurance premiums will only be deductible to the extent that the policies have the necessary connection to a liability of the fund to provide permanent incapacity benefits and not other types of disability benefits

auditor fees

interest - a complying SMSF is generally prohibited from borrowing money or maintaining an existing borrowing of money, but interest incurred in gaining or producing assessable income would be deductible.’

 Source: http://www.ato.gov.au/superfunds/content.aspx?menuid=0&doc=/content/00251857.htm&page=48#P1153_69675

 

IMPORTANT: As this information does not take into account your specific circumstances, we ask that you seek the professional advice of your qualified tax accountant to determine that this is applicable to your situation and suitable to your particular needs. 

 

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