Something many full time employees are unaware of is that generally the premium you pay for income protection insurance is tax deductible. This is because the ATO allows deductions for insurance premiums that relate to earning assessable income . You should be aware that if your policy provides both an income and capital benefit, you are only able to claim a deduction for the premium attributable to the income benefit.
How to claim tax deductibility
To claim your tax deduction, you need to:
- Determine the premiums you have paid on your eligible policy for the financial year ending June 30; and
- If you are issued with an insurer's statement as part of your paperwork, ensure that you keep this at it details exactly how much you've paid in premiums in the past financial year. Otherwise you can call your insurer up at the end of the financial year to get this figure.
Paying from your super
If you choose an income protection policy under your superannuation, your premiums will be paid from your super account instead of your after-tax income. This means you won't be able to claim the tax deduction on your personal income tax return. However, the compulsory contributions to your super fund from your employer (which ultimately pay for your premiums) are taken from your pre-tax income, which could in turn give you an overall tax benefit.
Keep in mind that if you choose to purchase income protection from your super, your choice of policies may be limited to what your super fund can offer. Also, insurance through superannuation is generally not subject to underwriting, which means the premiums payable by your fund may be higher than you would otherwise pay for an equivalent policy outside of super (assuming that you are eligible for standard rates of cover).
Declaring your benefits
If you make a claim on your income protection policy and receive a payout, any benefits you receive will need to be included as income on your tax return. Be sure to declare the payments for the financial year in which they are received. Your insurer will generally not deduct any income tax from your claim payments so you will need to remember to set aside some of your payments to pay your tax bill at the end of the financial year.
This information is general information only and does not constitute tax advice. You can get tailored advice for your particular situation by speaking with a financial adviser or tax professional.
To compare a range of income protection policies outside of super, and find the cover that’s right for you. Call Choosi on 13 55 55 today.
Can paying for insurance be tax deductible? Alan Lewis Accountants
These articles are provided as reference material to allow more informed decision making, but are not intended as being a complete source of information on any topic. All readers should make their own independent analysis on the topic to make sure they have considered the aspects that are important to them.