This Tax Tips Tuesday is focusing on Income Protection Insurance deductions.
Income protection insurance can play a very important part in someone’s cashflow. Income protection insurance is coverage due to a loss of income and can cover situations where you cannot work due to sickness or injury or sometimes even because of redundancy. The premiums paid is based on the income you earn and in terms of payment is generally paid out like a salary (ie monthly or fortnightly).
From a tax point of view, Income Protection Insurance deductions can be claimed in your tax return if structured properly. The tax deduction is available to either the person or entity taking out the insurance. Often we see it taken either through an individual or their Superannuation fund. However, be careful as if the policy is taken out through a Superannuation Fund, then it is the fund that can claim the tax deduction, not the individual. Most mortgage brokers should be able to assist in making sure the policy is taken out correctly.
Just remember that although the premiums a deductible, any claims made on your insurance will be taxable.
Income protection insurance shouldn’t be confused with life insurance or trauma insurance which is not tax deductible. This is because life insurance or trauma insurance is not coverage on your regular income rather on your life which the ATO sees as being capital.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting.