When is Income Protection Tax Deductible?

If you purchase a suitable income protection policy before the 30th of June and pre-pay 12 months of premiums, you can potentially claim a significant tax deduction in the current financial year. Contact your insurer or broker to get started.

When you hold an income protection policy in your name. the premiums are generally tax deductible. However, if you have a combined policy that is covering you for other benefits such as income protection with life insurance or trauma insurance, then only the portion of the premium that is protecting your income is deductible.

As you can only claim the tax deduction as an individual, many people choose to hold income protection outside of superannuation.

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Take note: The information below serves as a general guide only. We are not registered tax agents under the Tax Agent Services Act 2009. Please speak to your tax consultant or accountant for further information.

Can you claim income protection on tax?

The Australia Tax Office (ATO) is of the view that because income protection insurance premiums are there to protect your income, which is tax assessable, your premiums are tax deductible in nature. Therefore, if you paid your premiums with your own money and you are the listed as the policy owner on the policy, you will generally be able to claim the tax deduction in the year you paid the premiums.

However, if the premiums paid are for a future period you may only be able to claim the deduction in the year that the policy covers you for. Be sure to contact your accountant, as each person’s circumstance are different.

Advantages of paying my income protection premiums annually

The advantages of paying your premiums annually are that most life insurance companies give you a 5-8% discount for annual payments. If you have enough cash flow and paying yearly premiums won’t adversely affect your finances, you may want to consider this as an option to further increase your savings.

How to claim the deduction?

The easiest way for you to claim your tax deduction is to wait for the life insurance company are insured with to send you a statement highlighting exactly which premiums have gone towards your income protection cover.

Please note it takes insurers 4 – 6 weeks to generate these statements and you will need to wait till at least this time until you can ask the insurer to reissue the statement if you have misplaced it. 

From here you have two options:

Option 1

You can take the statement provided by your insurer to your accountant, and ask them where and how to include this information in your tax return.

Option 2

If you decide to complete your own tax return, refer to the ATO website to find out which section you need to include this in. If you have any question about where this should be claimed, you should call the ATO or check with your accountant.

When will I not be able to claim a deduction?

  1. Deductions are only available on premiums for insurance protecting your income. It is generally not available on other forms of personal insurance such as Life Insurance, Trauma Insurance or TPD Insurance because these do not protect your personal exertion income. Therefore, the ATO’s view is that these are not tax deductible in a personal capacity.
  2. If you have elected to add the lump sum option for income protection (offered by select insurers and pays you a lump sum benefit as opposed to the monthly benefit) this portion of the premium is generally not tax deductible.

Please consult your tax adviser or accountant for further legislation.

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 2018/19

Taxable Income RangeTax RateTax on this income
0 – $18,2000%Nil
$18,201 - $37,00019%19c for each $1 over $18,200
$37,001 - $90,00032.5%$3,572 plus 32.5c for each $1 over $37,000
$90,001 - $180,00137%$20,797 plus 37c for each $1 over $90,000
$180,001 and over45%$54,097 plus 45c for each $1 over $180,000

Source: Australian Taxation Office (June 2019)

Tax Rates for 2017/18

Taxable Income RangeTax RateTax on this income
0 – $18,2000%Nil
$18,201 - $37,00019%19c for each $1 over $18,200
$37,001 - $80,00032.5%$3,572 plus 32.5c for each $1 over $37,000
$80,001 - $180,00137%$19,822 plus 37c for each $1 over $87,000
$180,001 and over45%$54,232 plus 45c for each $1 over $180,000

Tax Rates for 2016/17

Taxable IncomeTax on this income
0 – $18,200Nil
$18,201 - $37,00019c 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 IncomeTax on this income
0 - $18,200Nil
$18,201 - $37,00019c 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 2018/19 Tax Table, you will see that his marginal tax bracket has a tax rate of 32.5 %.
  • 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 32.5% = $328.25 back from the ATO after he has lodged his tax return for the proportion of tax on his eligible premiums.

Is income protection insurance paid through super tax deductible?

No, if your income protection is held within and paid for by your super fund, the premiums are not tax deductible.

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.

Published: June 11, 2019

Ask an Expert?

2 Comments

  • tim |

    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?

    • SPECIALIST
      Russell |

      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.

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