Concessional Tax Treatment

Concessional tax treatment refers to tax benefits granted by legislation that result in lower tax rates or deferred taxation compared to standard tax treatment. In the insurance context, this primarily relates to superannuation-based insurance where premiums are effectively paid from contributions taxed at 15% rather than marginal rates. For a high-income earner on the 47% marginal tax rate, paying insurance premiums from superannuation means the contributions funding those premiums are taxed at 15% - a 32 percentage point tax saving. For someone contributing $10,000 to super to fund insurance, the tax on that contribution is $1,500, compared to $4,700 if received as salary and used to pay retail insurance premiums. The trade-off is that concessional tax treatment during accumulation may result in some taxation on benefits. Super death benefits to non-dependants are taxed at 15% plus 2% Medicare Levy on the taxable component, partially recovering the concessional treatment provided during accumulation. However, for tax dependants and retirement benefits over age 60, benefits remain tax-free despite the concessional contributions treatment. Concessional treatment also applies to the deductibility of income protection premiums, which can be claimed regardless of whether insurance is held in or out of super. The tax deduction provides concessional treatment by reducing assessable income, with the corresponding concession reversal occurring when benefits (which replace assessable income) are taxed. Understanding concessional tax treatment is crucial for comparing insurance structures and making informed decisions about holding cover inside or outside superannuation.