Superannuation fund trustees have until June 30 to ensure tax deductions for trauma and permanent disability insurance (TPD) premiums meet new Federal Government rules.

The Superannuation Legislation Amendment Bill 2010 was passed just before Christmas. Under the new law a superannuation fund trustee must meet new rules on defining disability benefits to claim a tax deduction for TPD premiums.

These rules will require trustees to seek medical advice from two doctors as to whether the person can ever be employed again in their particular work.

Previously the definition was applied to any occupation and if the fund’s trust deed has this definition, it will have to be changed to “own occupation”.

GMK Partners Director Taxation Chris Wookey says trustees “will need to be very careful” with the TPD wording in the policy and the fund’s definitions on insurance.

“I would advise trustees to look at the superannuation industry supervision regulations before looking at tax rules when thinking about adding TPD insurance for members,” he told insuranceNEWS.com.au.

“If the TPD insurance is not going to meet the new rules, then keep it out of superannuation.”

The tax office and Treasury have been discussing taxation treatment of TPD in superannuation for a number of years.

In the meantime, a number of advisers have put this insurance in self-managed superannuation funds in addition to more traditional life insurance cover.

Mr Wookey says he suspects a lot more TPD insurance will now be sold outside superannuation to avoid the new definitions.

TPD cover held by individuals is not affected by the new rules.