TPD deduction extension offers little relief

A Government extension to tax deductions for insurance premiums for total and permanent disablement (TPD) cover in superannuation gives little relief, with the possibility of insurance premium increases and decreased coverage for Australian workers, according to the Association of Superannuation Funds of Australia (ASFA).

ASFA said the Australian Taxation Office (ATO) has been seeking to change the standard that premiums for TPD insurance are fully deductible to funds.

“The change to the deductibility of TPD insurance premiums will increase the cost of providing such insurance and could lead to lower amounts of coverage,” ASFA chief executive Pauline Vamos said.

“The ATO view is that most, but not all of those premiums should be deductible as some people who suffer a severe disability and receive a superannuation benefit might still be able to work in some capacity," Vamos said.

She said this approach does not account for a lack of jobs for those with severe disabilities.

“The ATO approach also could potentially require each fund offering such insurance cover to pay substantial amounts of money for actuarial investigations into the volume of disability benefits paid to individuals who might still have some capacity to undertake paid work,” Vamos said.

This could result in some funds deciding to withdraw from offering TPD insurance as they do not consider the costs of seeking actuarial advice to be worth undertaking, Vamos said.

The Government has announced it will temporarily extend tax deductions for insurance premiums for TPD cover in superannuation until July 2011.