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Lawyer challenges ATO on cross-insurance call

By mbrownlee
March 19 2015
1 minute read
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One law firm has argued that while it is advisable to follow the ATO’s direction and view cross-insurance as banned, the legislation itself does not necessarily rule out the strategy.

Speaking at an SMSF Strategy Seminar hosted by DBA Lawyers, the firm's director, Daniel Butler, said that in his view the legislation introduced around insurance and superannuation in July last year does not necessarily prohibit the use of cross-insurance.

Mr Butler said following the implementation of the legislation in mid-2014, his firm still took the view that it was legal to use cross-insurance strategies for an SMSF.


“We saw other articles suggesting otherwise, so we wrote to the ATO because of the uncertainty and to seek further clarification,” he said.

The ATO stated that an SMSF could not provide insurance to a member unless the event was consistent with certain events, including death, a terminal medical condition, permanent incapacity and temporary incapacity.

“The ATO ruled it out in their fact sheet but you can see the errors are there: there are simple references failing to interpret the law as the law is, so it’s an impact that we disagree with but who are [we] to disagree? We’re just a law firm, the ATO is the ATO,” Mr Butler said.

“That’s not to say you couldn’t find a lawyer willing to take it all the way to the High Court, and take on a challenge like that.”

Mr Butler said he regards the reforms surrounding insurance and superannuation that were implemented mid-2014 to be a “retrograde step”.

“From a policy position, this was a shocking move from the government and [an example] of nit-picking by the ATO,” he said.

“I would like to see the government encouraging insurance."

Mr Butler said one of the best ways to do this was through superannuation, particularly as insurance is consistent with the objectives of superannuation.

While the ATO has clearly expressed its view on this, and SMSF practices and trustees probably wouldn’t want to contradict it, “the need that cross-insurance addressed is still there”.

Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au