Income Protection Insurance premiums are generally income tax deductible in Australia under the provisions which allow deductions for expenses incurred in earning assessable income.
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.
Reference to a recent case example of deductibility is provided in ATO ID 2010/178.
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 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.
Types of income protection insurance cover, 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 (see article link below).
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 “Other deductions” section of the tax return form. See:
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This page was last modified on 16 Aug 2017