Introduction
Income protection insurance has a different tax treatment to most other types of personal insurance.
This page explains the tax treatment of income protection insurance, including whether premiums are tax deductible and how claim payments are taxed. It also gives a breif overview of where tax treatment can differ when a policy is held inside super.
Is Income Protection Tax Deductible?
Yes, in most cases income protection premiums are tax deductible if the policy is:
- Held outside super
- Designed to replace your income if illness or injury stops you working
Always confirm specifics with your tax accountant.
According to the ATO
- You can claim a tax deduction for premiums paid to protect your salary or wages.
- Any benefit payments received must also be declared as income on your tax return.
You cannot claim a deduction if the policy is held inside super and premiums are paid from your super balance or super contributions.
Claim income protection deductions under - “Other deductions” on your tax return.
Income Protection & Super - Tax Only
Income protection can be held inside superannuation, which changes who receives the tax deduction for premiums. In most cases, premiums paid through super are not personally tax deductible.
Importantly, income protection benefits are generally treated as taxable income when paid to you. This applies to benefits paid outside super and, in most cases, to benefits paid from super as well - although the tax treatment of super payments can vary depending on age and how the benefit is paid.
Related
Income Protection Inside vs Outside Super
Frequently Asked Questions
Are income protection insurance premiums tax deductible?
Generally, income protection policies held outside super will be tax deductible however you should check with your tax accountant.
Do I need to include income protection payments on my tax return?
If you wish to claim tax deduction you should include in your tax return. Check with your tax accountant.
Do I pay tax on income protection benefits?
Yes. Monthly income protection benefits are treated as assessable income and must be declared in your tax return, regardless of whether the policy is held inside or outside super.
Is income protection tax deductible inside super?
No. If your policy is held inside super, your super fund may claim the deduction, but you cannot personally claim it in your tax return.