Business owners have been warned against purchasing buy/sell insurance through their self-managed super fund (SMSF), with the tax deduction benefits far outweighed by the potential risks.
The warning came via Partners Superannuation Services director SMSF Consulting & Auditing, Martin Murden, who said he has received a growing number of inquiries from business owners wanting to buy insurance through their SMSF.
Despite being thought of as a vehicle for beneficial tax deductions, the option could see partners taxed at a higher than expected rate, particularly if they fail the sole purpose test.
Other pitfalls include additional taxes if the beneficiary is not a tax dependent and less return on the investment, with insurance costs deducted from the SMSF contributions.
Murden said business owners should think carefully before embarking on the option and should make sure they have adequate TPD cover.
"Seek advice from a specialist risk writer and have them work with a solicitor to ensure you are adequately insured and the buy/sell agreement meets your needs," he said.
