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In Australia, you may have the option to claim a tax deduction for your income protection premiums on your yearly tax return. The amount you can claim will depend on your taxable income and marginal tax rate, but there are also some exceptions that may mean you’re unable to claim. We’ll take you through the ins and outs of deducting income protection premiums below.

In what situations are my premiums not deductible?

There are several reasons you might not be able to claim a tax deduction on your income protection premiums; if you’re unsure whether you’re eligible for a deduction, consider seeking tax advice from a qualified tax agent. These are some of the most common reasons, although there may be other factors in play:

You cannot claim on your income protection insurance premiums if you’ve taken out cover through your superannuation fund.

You also can’t claim on any term life, trauma/critical illness care or total permanent disability (TPD) insurance premiums, as well as any other policy that pays a lump sum to compensate you for an injury since they do not protect you against loss of your employment income. Only income protection covers you for a loss of income.

If you have a linked or bundled policy that combines income protection with one of the above products, you may still be able to claim back your premiums, but only the premium amount that relates to the income protection portion.

How does income protection insurance work?

Income protection insurance can replace your income if you can’t work due to an illness or injury. If eligible, your insurance company will typically pay a monthly benefit equal to a percentage of your regular income (e.g. 75%) for a set amount of time (e.g. six months or until the age of 65), called your benefit period.

More information about income protection and tax

  • You can only claim for the premiums you pay during the financial year. So, if you started your income protection policy halfway through the year, make sure you only claim for the premiums you’ve paid. You can, however, pay all your premiums a year in advance and then claim that whole amount on your return.
  • You’re taxed on your income protection payments. When it comes to compensation and insurance payments for lost income, you may need to pay tax on this money, according to the Australian Taxation Office (ATO).1 If you have to make a claim, keep this in mind when you do your next tax return.

Is it better value to get income protection inside or outside of superannuation?

This will depend on your own unique situation, such as your income, tax situation and insurance needs. Give yourself the best opportunity possible to get a great value product by weighing up options from both super funds and insurers.

Above all, make sure the cover you take out adequately fits your needs. Read a little more about these products or get straight to comparing income protection on our website.

The information provided here is of a general nature and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant product disclosure statement (PDS).


1 The Australian Taxation Office: Income and deductions – Other income, Last updated Jun 2022

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