How does the Income Protection Insurance Tax Deduction work?
Income Protection premiums are fully tax deductible to individuals according to the Australian Taxation Office. This is because the premium is an expense you have incurred protecting against the loss of your income.
However you cannot claim a personal tax deduction if you have income protection through a superannuation fund, including a SMSF. In this case it is the fund who owns the policy and pays the premium, not you. The fund will claim the premium as an expense and this will reduce the tax payable by the fund.
If you take out an income protection policy your insurance company will send you a statement each year of the premiums you have paid which you can claim as a tax deduction. These statements are usually sent out within one to two months of the end of the financial year. If you do not receive a statement you should request one from your insurance company.
When you complete your tax return you can claim your income protection premium as a work tax deduction in the “Other deductions” category.
How much you will save will depend on your marginal tax rate
Let’s look at an example:
If your taxable income is over $180,000 pa in 2016/17 your marginal tax rate will be 45% (excluding the Medicare Levy and temporary budget repair levy).
If your income protection policy costs $1,000 you would…
|Pay the insurer||$ 1,000|
|Receive a tax refund of||$ 450|
|Receive 20% back from Insurance Watch||$ 200|
|NET COST of Income Protection in first year ( a saving of 65%)||$ 350|
For incomes between $87,000 and $180,000 your marginal tax rate will be 37% and the net cost would be $430 – a saving of 57%.
For incomes between $37,000 and $87,000 your marginal tax rate will be 32.5% and the net cost would be $475 – as saving of 52.5%
These tax savings, along with Insurance Watch’s 20% refund offer, make income protection very affordable. Run your own quotes now.Compare Quotes Online Now >
Please Note: this is general advice only and you should seek advice from a tax professional on your own situation.