Section 295-470 of the ITAA (Future Service Benefit) allows a Fund to claim an income tax deduction on the payment of:
- a superannuation death benefit; or
- a terminal illness benefit; or
- a disability superannuation benefit or
- a temporary incapacity income stream.
The deduction, also known as the Future Liability deduction. It is available irrespective of whether the benefit is paid as a pension, lump sum or combination and can be used to offset Fund tax liabilities. Any unused deduction can be carried forward to future years.
The payment must involve a termination of a member’s employment or self employment. For this reason it is generally only available if the event occurs prior to the member’s 65th birthday. The deduction is available as an alternative to taking a deduction for life insurance premiums so, to be eligible, the Fund needs to hold a life insurance policy on the member’s life. The size of the deduction depends on the size of the total benefit. The amount of life insurance included in the benefit payment, if any, is irrelevant with the same deduction being achieved for a given benefit irrespective of whether it was predominantly sourced from life insurance or from savings. Similarly to life insurance premiums, this deduction has the potential to create an untaxed element.
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