Life Insurance Premiums and Tax Deductions
Policyholders should know and understand an insurance firm’s rules regarding premiums and tax deductions. In general, individuals who remit personal superannuation contributions could be entitled to specific tax concessions. If they are self employed or are deriving a minimal part of their earnings from formal employment, concessional or pre-tax contributions are deductible. An offset is provided to contributions on behalf of low-income husband or wife. If the life insurance is held beyond the superannuation environment, premiums are definitely exempted from tax deductions and tax concessions would not be available.
Personal contributions would only be deductible if it is a concessional contribution or if it is a pre-tax contribution. If the policyholder exceeds the contributions cap, there could be a liability for excess contribution tax, especially if the amount exceeds contributions cap set for a year. This is applied even if there is no limit in general to the amount of allowed deduction or contribution.
Conditions should also be satisfied to make contributions tax deductible. First, the contribution should be provided to a superannuation fund. Second, the contribution should be smaller than 10% of the contributor’s total assessable income. Third, the contributor who is less than 18 years old by the end of the fiscal year should have earned his/her income from employment or a business. Fourth, the contribution must be remitted on the 28th day following the month the contributor turns 75 years old. Lastly, the contributor must send a formal letter of notification to trustee to indicate his/her intention to claim a deduction.