“These four conditions of release align with the ability to claim a tax deduction on the premiums for those insurance-based policies and most super funds will claim on an annual basis the premiums that they pay,” Miller said.

“However, those same four conditions of release and those same four insurance policies are also claimable under this concept of the future liability to pay a benefit reduction under section 295.470, of the Income Tax Assessment Act.”

Miller said this would mean that instead of claiming on the annual premium that's paid, the fund would claim on the benefits attached to the payment made when one of those events occurs.

“If there is a death event, a TPD event, a terminal illness or temporary incapacity event, the fund can forgo the deduction on the premium. It can make an election not to claim a deduction on the premium, and instead claim a deduction based on the actual benefit payment itself.”

Aaron Dunn, CEO of Smarter SMSF, said that a specific choice sits within 295.465(4) and becomes a permanent decision. He added that it is an important decision that needs to be made at a particular time subject to the insurance event that ultimately happens within the fund.

Miller continued that the ATO view on this strategy is that a fund must have premiums being paid in a year, and the fund then must also be able to say it won’t be claiming on the premiums that year within the year the event occurs.

“Instead, the fund will indicate it is going to claim on the benefit payment itself. Ultimately, in the year that an event occurs there must have been a premium paid, which from an administrative point of view, gives credibility to the idea of paying monthly premiums versus annual premiums because if you don't pay a premium before the event, you don't have the capacity to make the election,” he said.

Different events can trigger different outcomes, Dunn added.

“When we think about the temporary incapacity there is a very different set of circumstances in that situation, on where and how the calculation applies.”

Miller gave an example of a single-member fund where the person was approaching age 65 and had a temporary incapacity event.

“The fund may be able to offset a significant deduction for a very short period, but because the temporary incapacity deduction is based on the amount of income that's paid in that first year, it might be a situation where the fund has only paid one or two months’ worth of income from a timing point, and that deduction is not going to be beneficial comparative to the premium deductions being paid on behalf of multiple members within a fund for various insurance policies.”

“This is because you have got to recognise that once you've made that election and it's irrevocable, then you can't then claim on the premiums, not just for that member, but for all members of the fund at that time and in the future.”