Is Income Protection Insurance Tax Deductible?
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Important: This article is a general guide only. We are not registered tax agents under the Tax Agent Services Act 2009. For advice that applies to your personal circumstances, please speak with a registered tax agent or accountant.
Can You Claim Income Protection Insurance On Tax?
In many cases, yes. The ATO’s view is that because income protection premiums protect your ability to earn assessable income, rather than providing a capital benefit, they are tax deductible in nature when the policy is structured appropriately.
The deduction usually applies to the income protection component of the premium only. If your policy includes additional cover types such as life insurance, trauma cover or TPD insurance, those portions are generally not deductible. Many insurers separate the deductible amount in the annual premium statement to make tax time easier.
Income protection insurance can apply to employees, self-employed workers, contractors and business owners. The key factor is whether the policy is designed to replace taxable income. If the benefits are intended to replace salary, wages or business income, the premiums are often deductible.
How much of your premiums can you receive back?
The amount of money that you’ll receive back from your income protection premiums will depend on what your income was and the rate of tax you pay in the relevant tax year.
Tax rates for 2025/2026
| Taxable Income Range | Tax Rate | Tax on this income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | 45% | $51,653 plus 45c for each $1 over $190,000 |
Tax rates for 2024/2025
| Taxable Income Range | Tax Rate | Tax on this income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 16% | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | 30% | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | 45% | $51,638 plus 45c for each $1 over $190,000 |
Tax rates for 2023/2024
| Taxable Income Range | Tax Rate | Tax on this income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 19% | 19c for each $1 over $18,200 |
| $45,001 – $135,000 | 32.5% | $5,092 plus 32.5c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $29,467 plus 37c for each $1 over $120,000 |
| $190,001 and over | 45% | $51,667 plus 45c for each $1 over $180,000 |
Tax rates for 2023/2024
| Taxable Income Range | Tax Rate | Tax on this income |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 19% | 19c for each $1 over $18,200 |
| $45,001 – $135,000 | 32.5% | $5,092 plus 32.5c for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $29,467 plus 37c for each $1 over $120,000 |
| $190,001 and over | 45% | $51,667 plus 45c for each $1 over $180,000 |
Tax rates for 2022/23
Taxable Income Range Tax Rate Tax on this income 0 – $18,200 0% Nil $18,201 – $37,000 19% 19c for each $1 over $18,200 $37,001 – $90,000 32.5% $5,092 plus 32.5c for each $1 over $37,000 $90,001 – $180,001 37% $29,467 plus 37c for each $1 over $90,000 $180,001 and over 45% $51,667 plus 45c for each $1 over $180,000 Tax Rates for 2021/22
Taxable Income Range Tax Rate Tax on this income 0 – $18,200 0% Nil $18,201 – $37,000 19% 19c for each $1 over $18,200 $37,001 – $90,000 32.5% $5,092 plus 32.5c for each $1 over $37,000 $90,001 – $180,001 37% $29,467 plus 37c for each $1 over $90,000 $180,001 and over 45% $51,667 plus 45c for each $1 over $180,000 Tax Rates for 2020/21
Taxable Income Range Tax Rate Tax on this income 0 – $18,200 0% Nil $18,201 – $37,000 19% 19c for each $1 over $18,200 $37,001 – $90,000 32.5% $3,572 plus 32.5c for each $1 over $37,000 $90,001 – $180,001 37% $20,797 plus 37c for each $1 over $90,000 $180,001 and over 45% $54,097 plus 45c for each $1 over $180,000 Tax Rates for 2019/20
Taxable Income Range Tax Rate Tax on this income 0 – $18,200 0% Nil $18,201 – $37,000 19% 19c for each $1 over $18,200 $37,001 – $90,000 32.5% $3,572 plus 32.5c for each $1 over $37,000 $90,001 – $180,001 37% $20,797 plus 37c for each $1 over $90,000 $180,001 and over 45% $54,097 plus 45c for each $1 over $180,000 Tax Rates for 2018/19
Taxable Income Range Tax Rate Tax on this income 0 – $18,200 0% Nil $18,201 – $37,000 19% 19c for each $1 over $18,200 $37,001 – $90,000 32.5% $3,572 plus 32.5c for each $1 over $37,000 $90,001 – $180,001 37% $20,797 plus 37c for each $1 over $90,000 $180,001 and over 45% $54,097 plus 45c for each $1 over $180,000 Tax Rates for 2017/18
Taxable Income Range Tax Rate Tax on this income 0 – $18,200 0% Nil $18,201 – $37,000 19% 19c for each $1 over $18,200 $37,001 – $80,000 32.5% $3,572 plus 32.5c for each $1 over $37,000 $80,001 – $180,001 37% $19,822 plus 37c for each $1 over $87,000 $180,001 and over 45% $54,232 plus 45c for each $1 over $180,000 Tax Rates for 2016/17
Taxable Income Tax on this income 0 – $18,200 Nil $18,201 – $37,000 19c for each $1 over $18,200 $37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000 $80,001 – $180,001 $19,822 plus 37c for each $1 over $87,000 $180,001 and over $54,232 plus 45c for each $1 over $180,000 Tax Rates for 2015/16
Taxable Income Tax on this income 0 – $18,200 Nil $18,201 – $37,000 19c for each $1 over $18,200 $37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000 $80,001 – $180,001 $17,547 plus 37c for each $1 over $80,000 $180,001 and over $54,547 plus 45c for each $1 over $180,000
Premium Deduction Case Study:
Dave the plumber is 30 years old and lives in New South Wales. He earns a salary of $85,000 per year after any other related deductions that he may already be eligible for.
– From the 2025/26 Tax Table, you will see that his marginal tax bracket has a tax rate of 30%.
– His income protection premiums were $1,010 for the year for his policy.
– He is the policy owner of his policy and the entire premium is income protection.
Therefore, Dave would be eligible to receive $1,010 x 30% = $303 back from the ATO after he has lodged his tax return for the proportion of tax on his eligible premiums, provided that all other deduction rules were met.
How Recent Tax Cuts Could Affect Your Income Protection Deduction
From 1 July 2026, the tax rate on income between $18,201 and $45,000 will reduce from 16% to 15%. A further reduction to 14% is scheduled from 1 July 2027. These changes will slightly reduce the tax saving available from claiming income protection premiums for earners in this income range, as the deduction is worth less at a lower marginal rate. The 2026–27 Federal Budget also introduced a $1,000 instant tax deduction for workers, separate from income protection, your tax adviser can help you understand how these measures interact with your circumstances.
When Is Income Protection Tax Deductible?
Income protection premiums are usually tax deductible when the policy is held personally and funded outside superannuation. The policy generally needs to be in your own name, with premiums paid directly by you rather than through your super fund. This is the most common structure for deductible income protection cover.
The benefits provided by the policy must also be designed to replace lost income. Most deductible policies pay monthly benefits if you cannot work temporarily due to illness or injury. Policies that provide ongoing income replacement are usually treated differently from policies paying lump sum benefits.
If your policy contains multiple types of cover, only the income protection portion may be deductible. Insurers will often provide a breakdown showing how much of the premium relates specifically to income protection. Keeping this documentation can help support your tax claim if required.
Income protection insurance is generally not subject to GST in Australia, as it is classified as a financial service. This means the full premium amount, excluding any non-deductible components, may be relevant when calculating your deduction.
Income Protection Tax Deduction Checklist
| Requirement | Explanation |
|---|---|
| Policy is in your name | Personally owned policies are generally easier to claim |
| Premiums are paid personally | Premiums funded outside super are usually deductible |
| Policy replaces income | The benefits must protect assessable income |
| Policy is held outside super | Personally held cover is treated differently from super-funded cover |
| Income protection portion is separated | Only the deductible portion can generally be claimed |
When Is Income Protection Not Tax Deductible?
There are several situations where income protection premiums may not qualify for a tax deduction. In many cases, this comes down to how the policy is structured, what type of benefits it provides, and whether the cover is held personally or through superannuation. While income protection premiums are generally deductible when replacing assessable income, other insurance products are often treated differently for tax purposes.
Income protection premiums are generally not tax deductible when:
- the policy is held through superannuation and funded by your super fund
- the cover relates to life insurance, trauma insurance or TPD insurance
- the policy pays lump sum or capital benefits rather than monthly income replacement payments
- the policy bundles multiple cover types together and the deductible portion is not clearly separated
- the premiums do not directly relate to protecting assessable income
If your policy combines income protection with other insurance products, only the income protection portion is generally deductible. Most insurers will provide a breakdown in your annual premium statement showing which part of the premium may be claimed.
Income Protection Inside Vs Outside Super
Where your policy is held can significantly affect how deductions work. Personally owned income protection policies are generally more straightforward because the individual paying the premiums may be able to claim the deduction directly in their tax return. This is often the arrangement people refer to when discussing deductible premiums.
Policies funded through superannuation work differently. While the super fund itself may claim deductions internally, the member generally cannot claim the premiums personally. This is one of the most misunderstood areas of income protection tax treatment.
Holding cover inside super may reduce immediate out-of-pocket expenses because premiums are funded using super contributions. However, personally owned policies may provide greater flexibility, simpler ownership structures and more direct control over claims and deductions.
Are Income Protection Payouts Taxable?
Yes, income protection payments are generally taxable. This is because the payments are designed to replace your normal employment or business income while you are unable to work. The ATO usually treats the benefits similarly to salary or wages. If you receive benefit payments through an income protection claim, whether paid as monthly instalments or as a lump sum, the payments will generally need to be declared as assessable income for the relevant financial year.
This is one of the main trade-offs with income protection insurance. While premiums may be tax deductible, the benefit payments themselves are generally taxable because they replace assessable income. The two tax treatments are closely connected.
How To Claim The Deduction
The easiest way to claim your income protection tax deduction is to wait for your insurer to send you an annual premium statement. This statement will usually show which portion of your premiums relates to income protection cover and may be deductible. If your policy includes other cover types, such as life insurance or TPD insurance, the insurer will often separate the deductible and non-deductible portions for you. This can make it easier to work out what may be included in your tax return.
From there, you can either provide the statement to your accountant or use the information when completing your own tax return. If you are unsure whether your premiums are deductible or where they should be included, consider checking the ATO website or speaking with a registered tax adviser.
Note that insurers typically take four to six weeks to generate annual premium statements after the end of the financial year. If you have misplaced yours, allow this time before requesting a reissue.
You generally have two options:
| Option 1 | Option 2 |
|---|---|
| Give the statement to your accountant or tax adviser and ask them to include the deductible amount in your tax return. | If you complete your own tax return, use the insurer’s statement to help identify the deductible portion of your premiums. |
Should Tax Deductibility Affect Your Decision?
Tax deductibility can help reduce the effective cost of income protection insurance, but it should not be the only factor influencing your decision. The primary purpose of income protection is helping protect your income and financial stability if illness or injury prevents you from working. Choosing cover based purely on tax outcomes may lead to unsuitable policy choices.
When comparing policies, it is important to consider factors such as waiting periods, benefit periods, exclusions and monthly benefit limits. The quality of the policy and the level of cover are often more important than the deduction itself. A lower premium may not always provide the protection you need.
Income protection insurance should ideally align with your income, expenses and broader financial goals. While tax deductions may improve affordability, the overall value of the policy depends on how well it protects your financial situation during unexpected periods away from work.
It is also worth noting that most income protection policies are designed to replace a portion of your income, typically up to 70% of your pre-disability earnings, rather than your full income. Understanding this limit is an important part of assessing whether a policy meets your needs.
Please be advised that this is a general guide only and we are not registered tax agents under the Tax Agent Services Act 2009. If you intend to rely on the advice to satisfy liabilities or obligations or claim entitlements that arise or could arise, under taxation law, you should request advice from a registered tax agent. Please speak to your tax consultant or accountant for further information.
Frequently Asked Questions and Answers
Can I claim income protection if I’m self-employed?
Yes, self-employed Australians can often claim income protection premiums when the policy protects assessable business income. This commonly applies to sole traders, freelancers, contractors and consultants.Can employees claim income protection?
In many cases, yes. Employees may generally claim premiums when the policy protects assessable employment income and is personally funded outside superannuation.Can I claim premiums paid through super?
Usually not personally. When the policy is funded through superannuation, the super fund may receive the deduction rather than the individual member.Is income protection paid by my employer tax deductible?
If your employer pays the premiums directly, you generally cannot claim a personal tax deduction for those premiums. The tax treatment for the employer may depend on how the arrangement is structured. A registered tax professional can help clarify your specific situation.Are income protection payouts taxed?
Yes, income protection benefit payments are generally treated as taxable income because they replace lost salary or business earnings. This applies whether benefits are paid as monthly instalments or as a lump sum.
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I am 69 year of age, still working and hope to you so till at least 75.
Income level about $150k and I am a consultant what is premium amount?
Hi Tim
Apologies, as this time we don’t’ have any income protection policies that someone age 69 can obtain. While we get several requests no insurer that we have access to has ventured into this market opportunity as of yet.