What is a preservation age and how does it relate to TPD payouts?

Your preservation age is the minimum age you must reach before you can access your superannuation benefits. This age depends on your date of birth. For TPD payouts made through your super fund, if you withdraw a lump sum before reaching your preservation age it is generally subject to a higher tax rate than if you wait until after. If you wait until age 60 your payout from super will typically be tax free.

Can I claim legal fees related to a TPD claim as a tax deduction?

You may be able to claim legal fees incurred to obtain a TPD lump sum payment as a tax deduction. The Australian Taxation Office (ATO) provides guidance on various deductions for managing tax affairs, which can include legal fees. It is advisable to consult a tax professional or the ATO directly for advice specific to your circumstances.

What is the taxable component of a TPD payout from super?

When a TPD payout is made from your superannuation fund it is divided into a tax free component and a taxable component. The taxable component generally consists of employer contributions and earnings within your super fund. The tax you pay on your TPD payout will apply only to this taxable component and its rate depends on your age and how you choose to receive the payment.

How does a TPD payout affect my future superannuation contributions?

A TPD payout generally does not directly prevent you from making future contributions to your superannuation fund. However, if you receive a significant payout and your super balance increases substantially, it could impact your eligibility for certain government co-contributions or increase your risk of exceeding concessional or non-concessional contribution caps in the future. It is wise to seek financial advice to understand the implications for your personal situation.

Is TPD insurance tax-deductible? Are benefits taxed?

Temporary or Permanent Disability cover is typically held in your superannuation or as a stand-alone policy.
If it's in your super, your TPD premiums are likely tax-deductible.
Premiums for TPD held outside your superannuation are generally not tax deductible.

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Maximum Cover	Minimum Cover	Maximum Entry Age	Expiry Age	Stand alone or Add on policy	hide
TAL TPD Insurance	$3,000,000		62	65	Standalone,Add-on	Choose up to $3 million in coverage. If you’re building a policy with TAL, it’s good to know there are a range of perks included with your life insurance. Examples include a counselling benefit and premium suspension cover. Plus, the option to add coverage for your kids.	Get Quote View details Compare product selectionCompare	loading
Medibank TPD Insurance	$1,500,000	$50,000	60	65	Add-on	Secure up to $1.5 million in TPD cover by choosing Medibank. This was more than 7 other providers (out of 14) we reviewed. Medibank health members can score 10% off their life insurance premiums.	Get Quote View details Compare product selectionCompare	loading
NobleOak TPD Insurance	$5,000,000	$50,000	59	75	Standalone,Add-on	Get fully underwritten TPD cover that can be shaped in a way that takes into account your job and other circumstances. The $5 million benefit limit is – alongside RAC – the highest sum on Finder.	Get Quote View details Compare product selectionCompare	loading

Showing 3 of 3 results

Is TPD insurance taxed in Australia?

If you bought Total Permanent Disability (TPD) insurance through your super, then the premiums may be tax-deductible to your super fund. If you bought TPD insurance independently, through an insurer, the premiums are not tax-deductible.

Are TPD payouts taxed in Australia?

Generally, benefits are not taxed for policies bought independently outside of a super. However, if you bought your policy through super, some of your payout may be taxed.

	Outside of super	Inside of super
Premiums	❌ Not tax-deductible	✅ Tax-deductible
Benefits	✅ Not taxed	⚠️ May be taxed

Are TPD insurance premiums tax-deductible?

If you bought your TPD insurance independently – that means through an insurance company rather than a super fund – your premiums aren't tax-deductible.

However, if you have TPD insurance through your super, your fund may be eligible for a full or partial deduction. The amount your fund can deduct will depend on the type of cover you have.

Type of TPD	How much of your premium a fund can deduct
Any occupation	100%
Any occupation with any of the following inclusions: Activities of daily living Cognitive loss Loss of limb Domestic duties	100%
Own occupation	67%
Own occupation with any of the following inclusions: Activities of daily living Cognitive loss Loss of limb Domestic duties	67%
Own occupation bundled with death (life) cover	80%
Own occupation bundled with death (life) cover and any of the following inclusions: Activities of daily living Cognitive loss Loss of limb Domestic (home) duties	80%

It's important to note that the tax deduction is available to the trustee of your superannuation fund, not to you personally. You may still see some benefits, however, as your super fund will usually apply this deduction to your superannuation balance.

If you have a self managed super fund, the situation may be different and potentially more complex, so it's worth speaking with a tax accountant or financial adviser.

Are TPD benefits taxed?

Sometimes. It depends on how you paid for your TPD insurance to begin with and whether you want to withdraw the money early from your super account.

If you got TPD independently (outside of your super), the benefits generally aren't taxed. You'll get a lump sum if your claim is successful and it's yours to keep.
If you got TPD through your super, the TPD benefit will be paid into your super account. If you choose to withdraw money from your super account early – that's between 55 and 60 years old depending on your date of birth – the money you withdraw will be taxed.

The standard tax rate when withdrawing super before retirement age is 22%. However, when withdrawing superannuation following a TPD claim, a portion of your withdrawal will be tax-free. Your super fund will apply a calculation based on your days of service, so the effective tax rate will be different for everybody.

How much are TPD benefits taxed?

If you bought your TPD insurance through your super fund and you claim a benefit, the money may be subject to tax. The amount will depend on your age, how you want to claim the payment and how much you already had in your super account.

How you claim the money	What happens
Withdraw a lump sum before your preservation age	Must pay superannuation lump sum withdrawal tax on the taxable component at a rate of 20% plus Medicare levy.
Withdraw a lump sum after your preservation age but under age 60	Must pay superannuation lump sum withdrawal tax on the taxable component at a rate of 15% plus Medicare levy.
Start an income stream	The taxable component of the annual income drawn will be taxable at your marginal tax rate, but with a 15% tax offset.
Leave the balance in super until you're 60	If you wait until you're 60 to withdraw money from your super, it is tax-free.

Speak to a broker for more information

We can only provide general advice, but issues like TPD and tax are very much individual issues. A life insurance and TPD broker can help you find cover that's tailored for your needs.

Frequently asked questions

Your preservation age is the minimum age you must reach before you can access your superannuation benefits. This age depends on your date of birth. For TPD payouts made through your super fund, if you withdraw a lump sum before reaching your preservation age it is generally subject to a higher tax rate than if you wait until after. If you wait until age 60 your payout from super will typically be tax free.
You may be able to claim legal fees incurred to obtain a TPD lump sum payment as a tax deduction. The Australian Taxation Office (ATO) provides guidance on various deductions for managing tax affairs, which can include legal fees. It is advisable to consult a tax professional or the ATO directly for advice specific to your circumstances.
When a TPD payout is made from your superannuation fund it is divided into a tax free component and a taxable component. The taxable component generally consists of employer contributions and earnings within your super fund. The tax you pay on your TPD payout will apply only to this taxable component and its rate depends on your age and how you choose to receive the payment.
A TPD payout generally does not directly prevent you from making future contributions to your superannuation fund. However, if you receive a significant payout and your super balance increases substantially, it could impact your eligibility for certain government co-contributions or increase your risk of exceeding concessional or non-concessional contribution caps in the future. It is wise to seek financial advice to understand the implications for your personal situation.

Finder writers are subject matter experts and use primary sources, in-depth research and interviews with other experts to ensure you're getting accurate, up-to-date information. Articles are fact checked in line with our editorial guidelines.
1. ATO Taxation Ruling TR 2012/6

Thank you for your feedback!

To make sure you get accurate and helpful information, this guide has been edited by Tim Bennett as part of our fact-checking process.

Written by

Nicola Middlemiss

Journalist

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Nicola Middlemiss is a journalist with nearly a decade of experience in personal finance and insurance. She has contributed to Domain, Yahoo Finance, Money Magazine and Insurance Business Australia, offering in-depth insights into commercial insurance in the Australian market. Nicola holds a Bachelor’s degree in English from the University of Leeds and a Tier 1 General Insurance (General Advice) certification, which complies with ASIC standards. See full bio

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Nicola has written 170 Finder guides across topics including:

Personal finance
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12 Responses

LeighAugust 9, 2016

I received $2300 gross from my super per month for a tdp claim through rest super. I am aged 52. Come tax time i am now forced to pay the tax dept $4,500 due to not enough tax being taken out of my monthly payment. Tried to talk to the insurance company who refuse to give me the % for correct tax and wether their is Medicare levy included. Can. You help me. My tax accountant ant advised me they should have taxed me at 20 to 22% whereby they seem to of only taxed me at 7% tax taken out was $160 approx. hope you can help.

Finder

RichardAugust 10, 2016Finder

Hi Leigh,

Thanks for your question. Finder is a comparison service and we cannot provide our users with personalised advice. You may want to Insurance Law Service for further assistance.

I hope this was helpful,
Richard

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TPD insurance and tax

Your premiums may be tax-deductible if you bought TPD insurance through your super fund. That's not likely to be the case if you went direct with an insurer.