Eligible For Tax Deductions By Claiming Income Protection Insurance ATO?
If you are like most people, saving is an important aspect of your financial decisions.
As such, it is important to become familiar with the various elements of your spending that might be tax deductible.
Knowing the items in your budget that are tax deductible means you get to cut back on taxes and even enjoy some cash once your tax return has been submitted. If you have or intend to get income protection insurance, you can enjoy tax deductions on your premium payments.
In addition to the obvious benefit of receiving a regular cash payout should you become temporarily disabled and unable to earn your monthly salary.
Generally, the Australian Taxation Office approves tax deductions on premiums for insurance products relating to the generation of assessable income. However, it is important to note that there are certain cases in which you may not be able to enjoy full tax deductibility, if any. Claiming tax deductions from the ATO that you do not qualify for could easily get you into trouble with the taxation authority.
Standalone vs. joint policies
If you hold a standalone income insurance protection plan from a retail insurance provider, you will probably find that your premiums are fully tax deductible. If this is the case, you should have no problem claiming income protection tax deductions for the premiums you pay for your policy. However, if you have a combined income insurance plan that includes a TPD or death cover, you may still be able to claim tax deductions, but only for the portion of your premiums that covers your income protection cover. As such, you may need to visit here and speak to your insurer to get an accurate figure for the split between the different elements of your plan.
If you take out insurance through superannuation, chances are you have a combined policy that includes death cover. This means that you would have to determine the amount of your premiums that goes toward your insurance. Note that if you have a combined income protection policy plan, and are unable to determine how much of the payments you make are income protection premiums, you cannot claim tax deductions for the cover.
It is also important to be aware that claiming income protection insurance ATO is only applicable if your coverage is meant to make regular benefit payments in case of a claim as opposed to a lump sum. According to the ATO, a lump sum payment is not considered an assessable income and is therefore not subject to tax deductions. If you have a joint policy, it is especially important to be sure about how your benefit payments would be made in case of an income protection claim.
Although there are general guidelines that dictate when income protection premiums are deductible and when they are not, you may require clarification on possible grey areas. If you have a joint policy, you should get in touch with your insurance provider to determine the portion of your premiums that covers income protection. You could also check with the ATO for up to date information and advice on the rules that apply to your case. Your accountant or financial planner could also provide helpful advice in this area.