Tax on compensation received by super funds from financial institutions and insurance providers

The ATO has published a fact sheet on tax payable by a super fund which receives compensation from a financial services provider or insurance provider for breach of contract or other cause of action, in circumstances where the super fund paid the fees or premiums from fund assets, allocated the cost to the members, and:

  • the financial service or advice was not provided,
  • the advice was deficient, or
  • the insurance premiums for death or disability insurance cover were overcharged.

If a super fund receives such compensation, the ATO notes that the trustee of the fund needs to be aware of possible super, income tax and goods and services tax (GST) consequences. The consequences depend on the circumstances in which the compensation amounts are received.

The ATO says it does not matter whether there is an admission of guilt or liability by the financial institution or insurance provider in making the payment.

In such circumstances, both the super fund and the payer should obtain tax advice.

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