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Pay your Life Insurance premiums from Super - and get double tax benefits.

distribute income to retired parents

How does this strategy work?

Life Insurance is money your family will receive in the event of you kicking the bucket.

Interestingly the premiums you pay for Life Insurance are not tax deductible, unless they’re paid from your superannuation.

Let’s say the premiums for your Life Insurance are $5,000 per year.

Option 1 (Without Tax Planning):  Pay the $5,000 Life Insurance premium outside of super.

No tax deduction applies.  Sad Face.

Option 2 (With Tax Planning):  Pay the $5,000 Life Insurance premium from your super fund.

First of all we need money into your super fund to pay the premium.

Business contributes $5,000 into Super.

This alone saves $2,350 tax, when compared to paying 47% tax in your own name.

Super fund pays 15% tax on $5,000 in super = $750 due.

Super fund pays $5,000 Life Insurance premium.

Super fund get 15% tax deduction for premium expense = $750 refund.

By paying your Life Insurance Premium from super, you’d save $2,350 in tax on the super contribution IN (when compared to paying tax in your own name) AND you’d receive a tax deduction for the $5,000 premium paid.

What do you need to implement this strategy?

  • A Business.
  • A Super Fund - industry fund or Self Managed Super Fund.
  • A Life Insurance policy.
  • A chat with an Inspire Chartered Accountant - www.calendly.com/inspireca.
  • To take action prior to 30 June.

FAQ’s: Pay life insurance premiums from super.

Why are Life Insurance premiums not tax deductible outside of super?

You cannot claim life insurance as a deduction (outside of super), because you don’t pay tax on the money received when you die.

Because no tax is payable when your family receives that money, it would be unfair to be able to claim a deduction for the premiums along the way.

The ATO has special rules, and allows a deduction in superannuation.

If I paid the same $5,000 premium outside of super, how much would I have to earn pre-tax to pay that?

If you pay a rate of 47% in tax, you’d have to earn $10,638 BEFORE tax, then pay $5,638 in tax.

Leaving the $5,000 after tax to pay your life insurance policy.

Does the same strategy apply to other insurances like TPD, Travel, Home, Car, Pet and Income Protection?

  • TPD - Yes, deductible through super
  • Travel - not tax deductible, unless the travel itself is deductible
  • Home - no, unless it includes business related assets
  • Car - no, unless you use your car for business
  • Pet - no
  • Income Protection - Yes, fully tax deductible outside of super

NEXT STEPS:  You can book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.