The Commissioner of Taxation has concluded, in ATO ID 2015/10, that using a self managed superannuation fund (SMSF) to hold a life insurance policy for the purpose of a buy sell agreement breaches the sole purpose test and the prohibition against providing a member (or a relative) financial assistance.

So does this mean that superannuation funds cannot be used to hold insurance in buy-sell arrangements? Not necessarily. The position of the Commissioner would appear not to apply to insurance held in public offer superannuation funds and potentially does not apply to SMSFs that don’t have any formal buy sell arrangements.

That said, any buy-sell arrangements under which it is proposed that a superannuation fund will hold insurance should be carefully reviewed in light of the Commissioner’s view; while consideration should be given to unwinding, or reorganising, any existing buy-sell arrangements that use an SMSF to hold life insurance policies.

For more information please contact:

Phil Broderick
Principal
Sladen Legal
03 9611 0163
pbroderick@sladen.com.au