Advisers should ensure that group insurance arrangements of clients meet the best interests duty after superannuation changes take effect on 1 July, says TAL.
In a commentary piece, TAL national technical manager David Glen said client insurance arrangements need to be reviewed carefully to ensure that both opportunities and pitfalls are identified.
Mr Glen said employees in receipt of employer-provided super may make additional deductible personal contributions into super, provided they don’t exceed their concessional contribution caps, and that any shortfall can be used to fund insurance arrangements in a tax-effective way.
He used the example of an employer making a $15,000 contribution into a super fund for an employee during the income year ended 30 June 2018.
“This employee will now have the capacity to make an additional deductible personal contribution of $10,000 in 2018,” Mr Glen said.
“If the premium on the requisite insurance for the employee is $5,000 per annum, the employee can make a deductible personal contribution of $5,000 to the super fund and have the super fund pay the requisite premium.”
Mr Glen noted that funding insurance in super in this manner can substantially reduce the cost of insurance, and that the $15,000 employer contribution and the employee’s member balance are not eroded by this arrangement.
In addition, the 15 per cent contribution tax does not apply in this situation.
“The personal contribution is included in the assessable income of the recipient superannuation fund, but there is an offsetting tax deduction within the superannuation fund for the premium paid,” Mr Glen said.
“This means that the contributions tax cost is reduced to zero via this tax deduction. Our employee’s insurance arrangements do not, therefore, carry any costs in addition to the premium paid.”