Are superannuation insurance payments taxable?

PUBLISHED 01 Feb 2020

Whether you’ve already satisfied your insurance policy’s conditions of total and permanent disablement and qualified for a TPD payment, or are just getting started on the process, you’ll no doubt be wondering about your tax obligations on a TPD payout.

If you’re 60 or more years of age, TPD payouts are tax-free when distributed to the policyholder or any nominated (and approved) beneficiary. But if you’re under 60, you may have to pay taxes on superannuation insurance payments you receive. This is dependent upon the circumstances surrounding your claim and how you receive the payment.

How taxes play into super payouts

If you’re accessing super via insurance benefits, three different situations generally apply: either a terminal medical condition, temporary incapacity or permanent incapacity.

In the case of a terminal medical condition, two medical practitioners must certify you have 24 months or fewer to live because of your illness or injury. If so certified, you may access your super – subject to the rules of the fund – and make a tax-free lump sum withdrawal.

If a physical or mental illness makes it so you are unable to work in any capacity – or if you can work, but not at your full potential – you can qualify for temporary incapacity. This means you may be able to access income protection insurance benefits or (if applicable) any voluntary employer-funded benefits. These two types of benefits come as a taxable income stream.

To be eligible for permanent incapacity, two medical practitioners must certify that you are unable to ever work again due to mental or physical illness or injury. In this instance, you may be able to access TPD insurance where a benefit is held and you have found to be entitled to such a benefit. The way tax would apply in these instances can vary. Speak to your superfund and/or financial advisor for further information.

Additional super tax considerations

A superannuation trustee may be able to reduce the tax burden a member pays when withdrawing super funds under permanent incapacity condition. This is known as a tax-free uplift.

Contact the compensation experts at Gerard Malouf and Partners to learn more about your tax obligations for superannuation insurance payments, as well as what your best options are.

Call us now on 1800 004 878 to book a free appointment with one of my compensation experts, or email your enquiry.