Does a superfund trustee have a tax liability on insurance proceeds it receives under the policy?

 Author: BlakeATO(Community Support)Community Support

ATO Certified Response25 Nov 2021

Hi @Wise

Good question!

A payout from a TPD insurance policy is a capital gain when the SMSF trustee receives it. This capital gain is disregarded for CGT purposes.

In the SMSF annual return, you need to report it as:

• Section B: Income Item 11:
  • Label G "Did you have a CGT event during the year?" - answer yes.
  • Label M "Have you applied an exemption or rollover?" - answer yes and enter code X.
• Section F: Member information or G: Supplementary Member information:
  • Label O "Allocated earnings or losses" - enter the amount received from the insurer that applies to the member.
  • Label R1 "Lump sum payment" or R2 "Income stream payment" (depending on how the member receives it): the amount paid to the member from the proceeds of the insurance payout.

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 Author: Wise(Initiate)Initiate

26 Nov 2021

That is interesting re it being a CG. Because it is exempt does this mean no tax is paid on the TPD proceeds by the trustee. I do understand the member does pay tax depending on lump sum or income stream.

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 Author: BlakeATO(Community Support)Community Support

28 Nov 2021

Hi @Wise

That's right. Because it's a capital gain event, it's reportable, but because it has an exemption, it removes it from the taxable income. This means the trustee does not pay tax on the amount. But the member will still pay tax depending on how they receive it.

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