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TPD insurance and tax

How you get TPD insurance will impact whether your premiums are tax-deductible and if your payouts will be tax-free.

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Disclaimer: This article contains general advice only and does not consider your own personal circumstances. You should obtain professional advice and verify our interpretation before relying on the information contained in this article.

If you're confused by tax and TPD insurance, we're here to help. This guide will explain when your TPD premiums are tax-deductible and when your payouts are tax-free, so you can make a more informed decision about the cover that's right for you.

Is TPD insurance taxed in Australia?

If you bought 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.

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 superInside 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 occupation100%
Any occupation with any of the following inclusions:

  • Activities of daily living
  • Cognitive loss
  • Loss of limb
  • Domestic duties
100%
Own occupation67%
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) cover80%
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%

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: If you got TPD 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 this rate is reduced and is 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 moneyWhat happens
Withdraw a lump sum before your preservation ageMust 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 60Must pay superannuation lump sum withdrawal tax on the taxable component at a rate of 15% plus Medicare levy.
Start an income streamThe 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 60If you wait until you're 60 to withdraw money from your super, it is tax-free.

Compare TPD insurance outside of super

Name Product Maximum Cover Minimum Cover Maximum Entry Age Expiry Age Stand Alone or Add on hide
NobleOak TPD Insurance
$5,000,000
Not Stated
64
75
Add on
Get fully underwritten Total and Permanent Disability Insurance that can be customised to fit your occupational situation and financial circumstances.
Real TPD Insurance
$1,000,000
$500,000
59
65
Add on
Get a quote for up to $1 million in TPD cover.
Guardian TPD Insurance
$1,000,000
$50,000
59
Not Stated
Add on
Get a quote for up to $1 million in TPD cover.
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10 Responses

  1. Default Gravatar
    KuldeepAugust 7, 2017

    I received lump sum payment for my TPD claim from Super fund (1st super) and certain tax was withheld on part payment.
    Can I claim legal fee that I paid to get this lump sum payment as tax deduction?

    • Default Gravatar
      ArnoldAugust 8, 2017

      Hi Kuldeep,

      Thanks for your inquiry.

      You may be able to claim some deductions which are not work related. They are:

      1. Interest and dividend deductions for investments
      2. Deductions for gifts and donations
      3. Deduction for the cost of managing your tax affairs.

      Some legal fees may be used as deductions. For more information please visit this government page.

      Hope this information helped.

      Cheers,
      Arnold

  2. Default Gravatar
    tanyaAugust 7, 2017

    My partner who is 54 yrs old is receiving a payout of TPD can you tell us the tax rate it is for a fixed sum of $155000

    • Avatarfinder Customer Care
      JonathanAugust 7, 2017Staff

      Hi Tanya, thanks for your inquiry.

      The taxability of the TPD payout will depend on whether it is held within the super policy. You can find out more about this in this guide.

      Best regards,

      Jonathan

  3. Default Gravatar
    JulieFebruary 15, 2017

    Can I claim tax back on the tax I paid on my TPD payout

    • Avatarfinder Customer Care
      ZubairFebruary 15, 2017Staff

      Hi Julie,

      Thank you for your question.

      Generally, you will not be able to claim a tax back on the tax payout. However, you can claim tax deductions on TPD premiums.

      Cheers,
      Zubair

  4. Default Gravatar
    BrianJanuary 9, 2017

    I received 61000 from rest for a total and permanent disability the monies were paid into my super account with rest. I want to access this money so I can build a small house on my block of land. I am 58 years old. Do I have to pay tax, and if so, approx. at what rate/amount?

    • Avatarfinder Customer Care
      MauriceJanuary 10, 2017Staff

      Hi Brian,

      Thanks for your question. According to the Industry Super website, withdrawals from your super account before the age of 60 will generally be taxed.

      The rate you’ll be taxed will depend on your personal circumstances. In general, the taxable component of a lump sum that’s withdrawn is taxed at 20% plus the medicare levy.

      Note: There are other factors that may be taken into account e.g. if you have reached your preservation age, then you can usually receive a lump sum tax-free (up to a certain amount). You might find this page useful.

      Good luck!

      Maurice

  5. Default Gravatar
    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.

    • Avatarfinder Customer Care
      RichardAugust 10, 2016Staff

      Hi Leigh,

      Thanks for your question. finder.com.au is a comparison service and we cannot provide our users with personalised advice. You may want to contact the Insurance Law Service.

      I hope this was helpful,
      Richard

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