Ask Noel: Insurance inside or outside of super?

Ask Noel: Insurance inside or outside of super?

I notice that a lot of advisers, both independents and insurance agents recommend having one’s insurance, including income protection, within their super fund. In the case of someone paying a marginal tax rate of 49 per cent, wouldn’t self-payment, and thereby receiving a tax deduction for the income protection premium, be better?

I asked a top adviser for his view and he replied that he would seldom recommend income replacement insurance be held inside a super fund. As you point out, you get maximum tax deductibility by insuring in your own name, and also a much better range and quality of income replacement products.

If I own my home as the sole title holder and my spouse uses it to run her business, would I be liable for CGT when I sell the property?

Obviously, this is something to discuss with your accountant, but the crucial element is that you as the sole owner have not used the property to produce income. Just don’t charge her any rent, or any share of outgoings on the property.

With regard to Labor’s proposed limit on the ability for people with low taxable incomes to get tax refunds of franking credits, what would the effect be on dividends taken as part of a Dividend Reinvestment Plan? Would new shares be limited to the franked amount only, or would they include the franking credit? In other words can a DRP be used to claw back franking credits that would otherwise be unused/not refunded?

The fact that a dividend is reinvested in additional shares instead of being deposited to a bank account does not affect the tax treatment. The amount of the dividend, plus franking credits, is added to your taxable income. Under the Labor proposal the franking credits could still be used to reduce your tax payable, but if no tax is payable excess franking credits will not be able to be refunded to you.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance.