Income Tax Ruling IT 155 is the governing ATO ruling applicable to taxation aspects of Key Person cover.

 
Purpose Key Person Revenue Key Person Capital
Tax treatment of insurance premiums Premiums are tax deductible to the business Premiums are not tax deductible to the business
Tax treatment of insurance proceeds Proceeds are assessable income and are subject to income tax. Death benefit proceeds are notassessable income. TPD or Critical illness proceeds may be subject to CGT1

1. Insurance proceeds are not assessable if the benefit is adeath benefit and the recipient was the original policy owner or the recipient did not pay consideration to acquire the policy. The proceeds of a TPD or Critical Illness benefit are subject to Capital Gains Tax (CGT) if received by anyone other than the life insured, a spouse or relative.

The purpose of the key person policy is crucial in determining the taxation consideration. It is important to record the purpose of the policy from inception date and to review the purpose of the policy from time to time.

Speak to your Business Insurance adviser regarding the tax treatment of Key Person cover or contact us.

This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.