Priority Protection
Priority Protection provides a selection of cover options to cater for a broad range of insurance needs.
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{{label}}24 October 2019
Welcome to this month’s technical roundup from the TECE team. This update helps keep you up to date with the latest industry news and technical developments in financial advice relating to insurance, superannuation, tax and estate planning.
The remaining PYS measures received Royal Assent on 2nd October with a number of amendments to the original Bill. This second tranche of measures is known as ‘Putting Members’ Interests First’ or PMIF changes.
Under PMIF, from 1 April 2020 a trustee cannot provide insurance for a member under a MySuper or a choice product where:
Trustees are required to:
It is important to note that there are a number of clients who will not be impacted by the PMIF changes, including:
The legislation includes a ‘dangerous occupation’ exemption that allows trustees to continue to provide opt-out insurance to certain new members aged under 25 years and members with balances below $6,000. The exemption applies to:
We will be releasing further material which will explain what the changes mean for clients and action items that advisers and clients must consider before 1 April 2020 so stay tuned.
Individuals who receive compulsory SG contributions from multiple employers are now able to opt-out of the SG regime to avoid breaching the concessional cap.
Instead of receiving contributions into superannuation, an employee may apply to the Commissioner to opt out of the SG regime in respect of an employer and negotiate with the employer to receive additional cash or non-cash remuneration.
Applications to opt out with an employer must be submitted to the ATO at least 60 days before the start of the quarter for which the exemption is sought.
The Government has passed the following integrity measures to ensure SMSF trustees don’t circumvent certain tax and superannuation provisions:
1. Expanding the non-arm’s length income (NALI) rules so that SMSFs are taxed at 45% where an SMSF has entered into an arrangement and the parties are not dealing at arm’s length and either:
SMSF trustees must therefore be aware that income derived from circumstances where undervalued expenses are involved will be treated as NALI and taxed at 45%. As a result, SMSF trustees should examine their investments to ensure all expenses are the same as if there had been a dealing on an arm’s length basis.
These changes apply to the 2018/19 and later income years.
2. The total superannuation balance (TSB) rules will be amended to include a member’s share of the outstanding balance of a limited recourse borrowing arrangement (LRBA) where either or both of the following are met:
An increase in a member’s TSB by their share of the outstanding balance of an LRBA can create liquidity issues for the SMSF. For example, if the member was planning on making future non-concessional contributions to enable their SMSF to pay off an LRBA but they are prevented from making further contributions due to their TSB, this may affect the SMSF’s ability to repay the LRBA and meet other ongoing expenses.
Thus an SMSF considering acquiring an asset via an LRBA should carefully consider:
The amendments apply to new borrowings entered into on or after 1 July 2018.
The Government recently announced an independent review of the retirement income system. This review was recommended by the Productivity Commission in their report Superannuation: Assessing Efficiency and Competitiveness and comes 27 years after the establishment of compulsory superannuation.
The review will look at the three pillars of the existing retirement income system, being the Age Pension, compulsory superannuation and voluntary savings (including home ownership) and how they interact with each other.
With this in mind, the review will cover the current state of the system and how it will perform in the future as Australians live longer and the population ages.
The review will be conducted by an independent three person panel with a consultation paper released in November 2019. The final report will be provided to Government by June 2020.
This is a significant review that will impact all Australians. We will keep you updated as the review into Australia’s retirement income system progresses.
Did you know that cancer continued to account for the majority of AIA Australia’s death and crisis recovery IFA claims in 2018?
Cancer is the leading cause of disease burden in Australia, accounting for one-fifth (19%) of the total burden according to the Australian Institute of Health and Welfare’s ‘Australia’s health 2018 In Brief’ Report, where:
Further, in 2018 AIA Australia saw mental health claims form an increasing proportion of the total income protection and total and permanent disablement claims.
For more information about AIA Australia’s IFA claims in 2018, refer to AIA’s Adviser Site > Marketing > Marketing material for you, to download the claims poster and claims brochure.
Q: My client is looking to take out key person insurance to protect their business in the event of their death, disability or illness. How should the key person policy be structured and what are the tax implications?
A: As a general rule, the trading entity (business) should own the key person policy. Remember that the purpose of a key person policy is to keep the business running so having the trading entity own the policy will allow the proceeds to flow directly to the entity that requires them.
The taxation implications of having the trading entity own a key person policy will depend on the business structure and the purpose of the key person policy, that is, whether the insurance is for a revenue or capital purpose.
The table below summarises the tax treatment of key person cover where the owner is the trading entity:
Do you have a technical question about a financial advice strategy or need to find technical resource material? Don’t hesitate to email us at tece@aia.com
Kind regards,
The AIA Technical and Education Centre of Excellence (TECE) Team
Copyright © 2019 AIA Australia Limited (ABN 79 004 837 861 AFSL 230043). All rights reserved. This information is intended for financial advisers only and is not for wider distribution. This information is current at the date of distribution and is subject to change. This is general information in summary only, without taking into account the objectives, financial situation, needs or personal circumstances of any individual, and may not be exhaustive. It is not intended as financial, legal, medical, tax or other advice.