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Income Protection Insurance

Income Protection Insurance Tax Deductible

Income Protection Insurance premiums are generally income tax deductible in Australia under the tax law provisions which allow deductions for expenses incurred in earning assessable income.

Tax Deductions

The general principal is that if the proceeds of the income protection policy would be assessable (because the proceeds are designed to replace lost earnings), then it follows that the premiums on such policies are tax deductible.

For a case example of deductibility see ATO ID 2010/178, now withdrawn and replaced with this.

Capital benefits

Some insurance policies combine income protection with capital benefits which are not ordinary income and not assessable. Examples include death or permanent disability cover, for which an apportionment of the premium (and the evidence) would be required in order to determine the tax deductible part.

Compensation payments for personal injury – for example from medical negligence or a motor vehicle or sporting accident – are generally tax-free, and so generally the corresponding policy premiums associated with that type of cover are not tax deductible.

Income protection insurance tips and traps

Income protection policy terms, conditions and appropriate types of cover vary considerably, and has been the subject of a review published at Choice online.

Factors identified by Choice which you should consider include:

  • What type of cover – agreed or indemnity value?
  • What dollar level of protection is appropriate?
  • How is the price of the premium determined?
  • Tips and traps
  • Tricky definitions

Tax return claims for income protection premiums

Income protection insurance premium tax deduction claims by individuals are claimable in the supplementary section of the tax return form in 2018.

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This page was last modified 2021-05-28