Anyone buying insurance would likely have several questions regarding coverage. Some critical aspects concern taxation issues, consolidating different super accounts and managing different income sources when receiving insurance payments.
Is Your TPD Insurance Payout Taxable?
Although your TPD benefit payment through super would be taxed, you'll enjoy some concessional tax treatment, which will reduce the amount of tax you have to pay. Moreover, taxation won't apply on the entire amount; rather this payment would be broken down into three different components with different tax treatments:
- The tax-free component
- The taxed element: a part of the taxable component which the super fund has already paid tax on
- The untaxed element: a part of the taxable component which the super fund hasn't paid any tax on
Your super fund can give you the exact details of how much of your payment would be taxed or not. However, that isn't all. Several other conditions would affect exactly how much tax you pay or not. The Australian Taxation Office clearly details these circumstances, which include:
- People who receive their disability super benefits in the form of income streams, while under the preservation age would benefit from further concessional tax treatment. They would benefit from tax offsets (a reduction in tax) of 15%, applicable on the taxed element of their payout.
- Others would actually receive a full refund of the tax paid on payouts if such taxation was done before they discovered that they had terminal medical conditions.
Can I Consolidate Different Superannuation Accounts?
Even before you think about the tax you need to pay, you must ensure that none of your super contributions goes to waste. This means that you should find and consolidate all your super accounts. This is especially so for people who end up having multiple accounts due to frequent job changes, casual work or part-time work.
The first step would involve tracking down all the accounts that are under your name. This can be easily done by contacting the ATO, which holds a comprehensive record of all super accounts. You would need to provide such details as date of birth, full name, address and your tax file number to enable them carry out a system search of all lost, unclaimed or current accounts.
Once you identify all the accounts, you should check whether you're required to pay any transfer or exit fees in order to roll over the multiple accounts into one fund. You should also confirm whether you're likely to lose certain insurance benefits during this consolidation process. After confirming all these details, you'll be in a position to make an informed choice, whether to consolidate or not.
How Do I Manage Different Income Sources During Payout?
During the waiting period, before a disability claim is paid, you're likely to receive financial assistance from several sources. One particular example is the Centrelink payments. Of course, when you do receive your payout, this will present a substantial change of circumstances. Hence, you must inform Centrelink of this.
Anyone who doesn't inform Centrelink of this change of circumstances may be forced to pay back some or even all of the financial assistance received.
Kerrie Peacock possesses diverse experience within the personal insurance industry. She shares useful tips to help Australians get the best coverage. You should contact MeCovered for further professional consultation. For more information on www.mecovered.com.au/tpd-insurance-payout-taxable.