Insurance Deductability
- Thread starter zimby
- Start date
Zimby - The policy must be taken out by the trustee of the fund. The fund cannot just pay for a policy taken out by the member. That will breach SIS.
Life cover is also an area where its important to have a corporate trustee. If the trustees are humans the issue of SMSF compliance poses some questions : The policy may be in names of the members rather than the fund.
The trustee normally applies each members policy premiums as a reduction to the member account. For this reason its good practice for the trustee to document that the members agree that the insurance is NOT to pay death benefits but is to be used to repay the loan etc. Imagine the issues if spouse of a member were to consider the insurance theirs and the trustee uses it to fund a loan payout...The premiums are tax deductible to the fund (15% rate) to the extent it is for life cover. Policies which offer trauma, TPD etc have different tax rules and I wont comment here.
There are further issues that life insurance brings. For example SIS Regs have a requirement that death benefits be CASHED as soon as practicable. That might be difficult and create a liquidity issue. Investmnet disposals may be forced on the fund even if the loan is paid out. Therfore it may be prudent to use insurance to payout the death benefit and NOT the loan. Sometimes reversionary pensions can be used to avoid a death benefit trigger.
The illness issue you refer to pose a further concern. A medical issue may result in a valid claim. However if the member doesnt fulfil a condition of release (stricter rules!) then the $$ may be incapable of being paid. It may sometime be prudent to consider alternative arrangements such a the member self-insuring for income so they can claim deductions at their marginla tax rate and avoid the COR problem.
If you need a adviser who knows SMSF and can quote policies contact us.
Life cover is also an area where its important to have a corporate trustee. If the trustees are humans the issue of SMSF compliance poses some questions : The policy may be in names of the members rather than the fund.
The trustee normally applies each members policy premiums as a reduction to the member account. For this reason its good practice for the trustee to document that the members agree that the insurance is NOT to pay death benefits but is to be used to repay the loan etc. Imagine the issues if spouse of a member were to consider the insurance theirs and the trustee uses it to fund a loan payout...The premiums are tax deductible to the fund (15% rate) to the extent it is for life cover. Policies which offer trauma, TPD etc have different tax rules and I wont comment here.
There are further issues that life insurance brings. For example SIS Regs have a requirement that death benefits be CASHED as soon as practicable. That might be difficult and create a liquidity issue. Investmnet disposals may be forced on the fund even if the loan is paid out. Therfore it may be prudent to use insurance to payout the death benefit and NOT the loan. Sometimes reversionary pensions can be used to avoid a death benefit trigger.
The illness issue you refer to pose a further concern. A medical issue may result in a valid claim. However if the member doesnt fulfil a condition of release (stricter rules!) then the $$ may be incapable of being paid. It may sometime be prudent to consider alternative arrangements such a the member self-insuring for income so they can claim deductions at their marginla tax rate and avoid the COR problem.
If you need a adviser who knows SMSF and can quote policies contact us.
