A recent ATO interpretative decision (ID) has provided increased flexibility for SMSF trustees in regard to the tax treatment of life insurance cover taken out inside the fund.
ATO ID 2015/17 stipulates SMSF trustees could elect to claim a tax deduction for the ‘future service portion’ of the death benefit or life insurance payout.
The choice to claim the ‘future service portion’ deduction can be made after the member in question has passed away and must be included in the tax return for the financial year in which the death benefit is paid.
However, if an election to claim a tax deduction in this way has been made, the fund will no longer be able to receive a deduction for the insurance premiums paid on the cover. The choice can still be made though even if the insurance premiums were claimed as tax deductions in the preceding year.
Further, once the choice to claim a tax deduction for the ‘future service portion’ has been made, the election applies to all members and subsequent financial years.
“Choosing to claim a deduction for the future service portion can provide the fund with a significant tax loss which can be offset against current or future assessable income,” Townsends Business and Corporate Lawyers special counsel Michael Hallinan said.
In other news, the ATO announced it would extend the date by which medium to large employers needed to be SuperStream compliant by four months to 31 October 2015.
The original compliance deadline was 30 June 2015.