Australia’s largest Catholic superannuation fund is lifting its total and permanent disablement (TPD) cover without increasing premiums, but confusion still surrounds the tax deductibility of those premiums. Australian Catholic Superannuation & Retirement Fund (ACSRF), in conjunction with its group insurer ING, has increased the value of each TPD unit between 8 and 28 per cent depending on the member’s age. The Australian Taxation Office (ATO) maintains that TPD premiums are not always fully tax deductible, particularly for policies with ‘own occupation’ definitions, and that this rule should have applied since July 1, 2004.

Greg Cantor, chief executive of ACSRF, was optimistic that most of the members’ TPD claims would “fall within the ATO’s definition and will therefore have minimal impact on our members”. “The fund will continue to monitor this situation, along with ING and appropriate advisors,” he said. Graeme Colley, national technical manager of ING Australia, said that until Parliament amends the Superannuation Industry (Supervision) Act, “we and many other providers of TPD policies will not be in a position to change the wording of the relevant policy documents”.

He said that, under the current income tax law, the trustee of a superannuation fund is permitted to claim a tax deduction for insurance premiums of TPD policies for fund members employed in their ‘own’ occupation. A tax deduction on this basis has been in place since the relevant legislation began in 1988. However in July 2007, a number of changes were made to superannuation legislation, resulting in a reexamination of the income tax legislation including those relating to the tax deductibility of premiums for TPD insurance.

“In view of these differences,” he said, “it became evident that the superannuation industry’s interpretation of the law differed from that of the ATO.” The minister for superannuation, Chris Bowen, imposed a transitional rule to continue the tax deductions on premiums on ‘own occupation’ TPD policies until July 1, 2011. To illustrate the complexity of the current law, Jennifer Brookhouse, director of financial planning company Strategy Steps, provided the example of a specialised surgeon who becomes disabled but is deemed to be able to work as a general practitioner, thus not fulfilling the SIS Act’s conditions for release of funds.

This applied to all superannuation funds that allow members to hold TPD insurance, she said. “Whether the change affects a particular policy will depend on the definition of TPD in that policy. Some policies may already have a definition that is the same as the superannuation definition of TPD. Some may have a slight variation and others significant.” Where the possibility of ambiguity exists, members should investigate TPD outside their super fund, said David Wright, executive manager of life risk products for insurer Asteron. If TPD premiums are paid through a super fund, then the insurer’s payment of a claim goes to the trustees, which may not release funds to the claimant if doubts exist about the SIS Act rules, Wright said. He added that, in this case, it is simpler if the agreement is just between the insured and the insurer.

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