Income Protection Insurance and Tax Deductions
Income protection insurance policyholders often wonder if the premiums they pay are tax deductible. In general, the Australian Taxation Office approves tax deductions for any insurance premium if it could be proven that it would relate to generation of assessable income. Income protection is a specific type of insurance where tax deduction is allowed.
The tax regulator’s view is that premiums shouldered results to benefits of income. This way, tax deduction is clearly allowed. However, if your income protection insurance policy comes with lump-sum coverage for injury, disablement, or death, that part of your premium may not be allowed tax deduction anymore. You should ask your insurer about how much insurance premium you could claim possibly as tax deduction if your income protection insurance is combined with any death or disability policy. Inability to determine the split would not enable you to claim any tax deduction at all.
Aside from asking your insurance provider about such information, you should also get in touch with the Australian Taxation Office. Your tax accountant could also shed some light on such an issue. There could be other tax concerns regarding your income protection insurance that you need to address and understand.
Always remember to declare any claim or proceed you obtain from your income protection insurance in your tax return. Many policyholders end up having taxation problems in the future because of failure to do so. As always, negligence is not and would never be an excuse to the law.