What your TPD claim through super is really worth after tax

If the benefit is paid out of super and you are 60 or over, you pay no tax on it at all. Under 60, the taxable part of the lump sum is taxed at 22%, which is 20% plus the 2% Medicare levy. But the tax free part is not what an ordinary statement says it is. Section 307-145 of the Income Tax Assessment Act 1997 recalculates it to cover the years you would have worked, and on a claim at 40 that moves most of the payment out of the taxable part altogether.

It is a tax rule that makes more of your TPD payout tax free. The tax free amount becomes the payment multiplied by the days from the day you stopped being able to work until you turn 65, divided by that same number plus the days you have been in super up to the day you are paid. The younger you are, the more of the payment comes out tax free. That is the opposite of how most tax concessions behave, and most of the reason this one goes unclaimed. It needs certificates from two doctors, and a fund that does not have them takes tax at the normal rate.

Yes. Cover is a contract with each fund's insurer and each one is claimed separately, so somebody with three super accounts may hold three separate amounts of default cover. Claiming on one does not claim the others, and no part of the process cross-checks. The trap is that the forgotten accounts are usually the ones with no contributions going in, and cover is cancelled on an account with no contributions for 16 months unless the member elects in writing to keep it. What matters is whether the cover was in force on the date the disability arose.

TPD means total and permanent disability. It is insurance held inside your super account that pays a lump sum if illness or injury means you are unlikely to ever work again. The insurer pays your super fund, not you. The fund adds the money to your account and can then pay out the whole account, so your balance and the insurance are paid, and taxed, together.

Any occupation means you must be unlikely to ever work in any job you are reasonably suited to by education, training or experience. Own occupation only asks whether you can go back to your own job, so it is easier to meet. Any occupation is the standard inside super, and own occupation is rare for cover taken out after 1 July 2014. The definition decides whether you are paid, not how the payment is taxed.

There is no fixed time. Most policies have a qualifying period that has to pass before a claim can even be assessed, and the assessment then takes months more while medical reports are gathered. Each super account is a separate claim running on its own timetable. Waiting does not shrink the tax concession, because it is measured from the date you stopped being able to work.

Where employment permanently ended because of the disability, the claim has to reach the super fund within 2 years of that day for the Australian Financial Complaints Authority (AFCA) to be able to hear a complaint about the answer. Lodged in time, the complaint itself then has 4 years from the decision to reach AFCA. Where employment did not end because of the injury or illness, the limit is six years from the decision. AFCA Rule B.4.1.1. The clock runs from the day work permanently ended. Not from the day the fund said no, and not from the day somebody discovered there was a second account with cover on it. The insurer and the fund can still pay outside that window. What is at risk is the free, binding review if they do not.

You can ask for the written reasons and complain for free. Start by asking for the reasons and the documents the decision was based on. The fund's own complaints process is free and normally has to come first. After that, AFCA handles super complaints free of charge and its decisions bind the fund. A decline on one account decides nothing about your other accounts, which are separate claims.

No. TPD pays one lump sum when you are permanently unable to work. Income protection pays a monthly benefit while you are unable to work. Income protection is taxed as ordinary income in the year you get it, while a TPD benefit through super is taxed under the super rules, with the section 307-145 concession. Holding both is common, and one does not stop you claiming the other.

Ask each fund in writing what cover was in force on the date you stopped being able to work. The ATO's record shows every super account reported against your tax file number, even ones you have no paperwork for, but it does not show the insurance on any of them. Only the fund can tell you that. Avoid closing or rolling over an account while that question is still open.

Rolling an account over before you claim can cost you its cover. A rollover moves the money and closes the account, and the insurance policy attached to that account ends at the same moment. The cover does not move to the new fund and it is not replaced. So an account rolled over before a claim is made is an amount of cover that stops existing. This calculator prices that as one of the outcomes rather than putting it in a warning box, because a dollar figure is harder to argue with than a caution.

No. $19 once, and that is the whole of it. We are not paid by any fund, insurer, law firm or claims agent, we take no referral fee, and we have no interest in which way you decide anything. A no-win-no-fee lawyer is paid out of the claim, often 10% to 30% of the payout once fees and costs are added. The report shows what any percentage you enter would cost you in dollars, before anything is signed.

Not necessarily. Where a fund has withheld at the ordinary rate because it was never given the two medical certificates, the position can be corrected, either by the fund recalculating once it has them or through the tax return for the year the payment was received. The payment summary the fund issues shows the split it used, which is the quickest way to tell whether the disability treatment was applied at all. The report has a section on it.

No. This is an information service. It applies the published superannuation and tax rules to the figures you enter and shows what they produce, with every working visible. It ranks the ways of taking a benefit on one stated measure, what reaches your bank account, and does not recommend one. It cannot tell you whether your claim will be accepted, and nothing on this site can. The amount actually paid is set by the insurer under the policy your fund holds, and the tax on it is worked out by the fund when it pays.