Are life insurance premiums tax deductible?
Life insurance within superannuation may be entitled to tax concessions and only apply:
- If the contributor is self employed or derives only a small part of their income from employment, the pre-tax (concessional) contributions may be deductible; or
- For contributions on behalf of a low income spouse, entitling the contributor to an offset.
However, where life insurance is held outside of the superannuation environment, the premiums are generally not tax deductible and tax concessions are not available.
How much can I deduct?
For the personal contributions inside superannuation to be deductible it must be a concessional contribution, meaning it must be a pre-tax contribution.
Although there is generally no limit on the amount of contribution or on the deduction allowable, if the member exceeds their contributions cap they may be liable for excess contributions tax if the contributions made exceeds the contributions cap for the year in which it was made.
It is important to understand how much can be contributed to superannuation so that the rules are met and the benefits can be triggered.
So, what are the limits on the Contributions?
From 1 July 2009, the contributions caps are as follows:
Contributions Cap for 2009/10
Age Amount
Under 50 years on 1/7/2009 $25,000
50 or over on 1/07/09 $50,000
Non-Concessional Contributions Cap for 2009/10
Age Amount
Under 65 $150,000
or up to $450,000 over a 3 year period
(under the bring forward provision)
Age 65 > 2009/10 $150,000
Examples of concessional contributions include:
- contributions made in respect of super guarantee
- any additional employer contributions
- salary sacrifice
- personal pre-tax contributions in respect of self employed persons
- contributions made by friends
Concessional contributions are included in the fund's assessable income and these contributions form part of the taxable component within a superannuation fund.
Examples of non-concessional contributions include:
- excess concessional contributions
- government co-contributions
- personal contributions for which no tax deduction is claimed
- spouse contributions
- 100% of transfers of overseas pensions into Australian superannuation funds within six months of Australian residency
- proceeds from the sale of a small business that are contributed into superannuation (if the amount did not qualify for the 15 year or retirement CGT small business exemptions. Also the contributions which were included in the fund's assessable income but where a tax deduction was disallowed)
Non-concessional contributions are not included in the super fund's assessable income and form part of the tax-free component.
What conditions must be satisfied for contributions to be deductible?
Personal contributions by a member are only deductible if certain conditions are satisfied:
- If the contribution is to a superannuation fund, it must be a complying superannuation fund.
- Less than 10% of the total of the contributor's assessable income and reportable fringe benefits for the income year comes from employment-related activities.
- A contributor aged under 18 at the end of the income year must have earned income from carrying on a business or from employment.
- The contribution must be made by the 28th day after the month in which the contributor turns 75, and;
- The contributor must notify the trustee in writing that they intend to claim the deduction, they must receive acknowledgement from the trustee, and they cannot deduct more than the amount stated in the notice.
Exclusive Offer! Call xLife on 1300 135 205 today and
save up to 20% on your first year's life insurance premium.
September 2010
