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No. The ATO considers, for RBL purposes, salary continuance benefits are to be regarded as 'replacement of income' benefits rather than 'retirement income' benefits. The regular payments are made in the expectation the recipient will return to work. Thus, they are treated like salary and wages for income tax purposes and are not subject to RBLs for the duration of the temporary disability.

Salary continuance benefits are insured benefits payable in the event of the temporary disablement of an employee or self-employed person who is a member of a superannuation fund. The benefits are designed to be paid, in full or in part, during prolonged absence from employment or income producing activities because of temporary disability, to: replace the salary of an employee; provide a minimum level of income to a self-employed person; or compensate the policyholder for the salary paid to the employee.

The insurance is usually taken out by an employer, a self-employed individual or the trustee of a superannuation fund. The insurance is to cover events that are in the nature of temporary disablement and prevent the member from undertaking income producing activities. The benefit is usually paid periodically while the disablement continues.

Salary continuance benefits are not normally payable to compensate the member for the loss of salary due to relatively minor illness. For employees, these events are usually covered by sick leave entitlements.

The regular payments are intended to be a direct compensation for salary and not intended to be in the nature of a payment during 'retirement'. Accordingly, for income tax purposes, salary continuance benefits are treated by the recipient as compensation for salary.

Thus, salary continuance benefits are: not counted for RBL purposes, irrespective of the payment period; to be known as 'replacement of income' benefits for RBL purposes.

Where a person is in receipt of a salary continuance benefit and is subsequently diagnosed as being permanently disabled, the benefit (from the date of being diagnosed as being permanently disabled) is to be reported for RBL purposes and counts against the recipient's RBL.

if you wish to comment on this Draft Taxation Determination, please send your comments by Friday 12 March 1999 to: Contact officer details have been removed following publication of the final ruling.