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Is income protection insurance tax deductible?
According to the Australian Tax Office (ATO), you may be able claim the cost of your income protection insurance premiums against any loss of income as a tax deduction. Tax deductions can help to reduce your taxable income.
Only the premiums you pay to protect your salary or wages are tax deductible. If you receive any payment under an income protection policy, you must include it in your next tax return as income, unless the payment is made through your employer and they take out any tax for you.
If you have questions about claiming a tax deduction for your income protection insurance, you should speak to a professional.
How does tax deduction work?
When claiming your income protection insurance premiums, the cost of your premiums can be claimed against your taxable income, so the amount of your deduction will depend on your income and marginal tax rate (highest rate of tax payable).
For example:
Dianne takes out an income protection policy through her insurer. If she pays a total of $1,000 a year for the policy, Dianne can claim for the $1,000 in premiums at tax time, and depending on her income can claim at the marginal tax rate. See below tables for the 2024 and 2023 financial years:
Tax rates and thresholds for 2024/25
From 1 July 2024:
| Taxable income | Annual premium | Marginal tax rate 2024/25 | Tax deduction |
| $0-$18,200 | $1,000 | Nil | $0 |
| $18,201-$45,000 | $1,000 | 16c for each $1 over $18,200 | $160 |
| $45,001-$135,000 | $1,000 | 30c for each $1 over $45,000 | $300 |
| $135,001-$190,000 | $1,000 | 37c for each $1 over $135,000 | $370 |
| Over $190,000 | $1,000 | 45c for each $1 over $190,000 | $450 |
Tax rates and thresholds for 2023/24
| Taxable income | Annual premium | Marginal tax rate 2023/24 | Tax deduction |
| $0-$18,200 | $1,000 | Nil | $0 |
| $18,201-$45,000 | $1,000 | 19c for each $1 over $18,200 | $190 |
| $45,001-$120,000 | $1,000 | 32.5c for each $1 over $45,000 | $325 |
| $120,001-$180,000 | $1,000 | 37c for each $1 over $120,000 | $370 |
| $180,001 and over | $1,000 | 45c for each $1 over $180,000 | $450 |
Income and deductions are for illustration purposes only and does not include any other deductions or figures such as the Medicare levy.
If you have questions about claiming a tax deduction for your income protection insurance, you should speak to a professional.
What conditions must be met for income protection insurance premiums to be tax deductible?
For your income protection insurance premiums to be tax deductible, the following conditions must be met:
- the policy must be held by an individual;
- the policy must be issued by an Australian-licensed insurer;
- the policy must be for the purpose of providing income protection;
- the policy must not cover any other types of insurance, such as life or total and permanent disability;
- the policy holder must have an income to protect and must be either employed or self-employed; and
- the premiums must be paid directly by the policy holder, not through superannuation, etc.
It is important to note that the ATO has strict guidelines around claiming a tax deduction for income protection insurance. If you are unsure whether you are eligible to claim a deduction, you should speak with a professional.
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How much of my income protection insurance premiums can I claim as a tax deduction?
Every one’s situation will be different depending on their circumstances. In some cases, you may be able to claim the full cost of your income protection insurance premiums as a tax deduction.
If your income protection insurance policy includes other types of cover, such as life or total and permanent disability, you can only claim a deduction for the portion of your premiums that is attributed to your income protection insurance.
Always seek professional advice and visit the ATO website for more information.
Learn more about what is covered by income protection insurance.
How do I claim the tax deduction for income protection insurance?
Firstly, make sure that you are eligible to claim the deduction. To claim a tax deduction for income protection insurance premiums, you will need to:
- Keep records of your income protection insurance premiums, including the date you paid any premiums, the amount paid, and the name of the insurer.
- Complete your tax return, declaring your income protection premiums as a deduction.
- Attach your income protection insurance policy to your tax return, in case the ATO asks for evidence of your premiums.
What are the benefits of claiming a tax deduction for income protection insurance premiums?
There are a number of possible benefits to claiming a tax deduction for your income protection insurance premiums, including:
- Reduced taxable income – claiming a tax deduction for your income protection insurance premiums can reduce the amount of taxable income.
- Improved cash flow – claiming a tax deduction for your income protection insurance premiums can free up some cash at tax time.
- Reduced cost of cover – the ability to claim a tax deduction for your premiums at the end of each financial year means that the overall cost of cover can be reduced by the return you get back.
Are there any limitations when claiming a tax deduction for income protection insurance?
There can be limitations when claiming a tax deduction for income protection insurance, and it is important to note that the ATO has guidelines around claiming.
If you are unsure whether you are eligible to claim a deduction, you should speak with a professional.