How insurance measures up when you’re chasing tax deductions

INSURANCE premiums can seem like a frustrating drain on finances, but Australians can claim a tax deduction in many cases. This is how the rules work.

TAX and insurance are two of the most confusing topics in the world of finance, but they go together more than many people think.

If you’re among the 13 million Australians completing their income tax returns, it’s worth knowing what insurance premiums can be claimed as a tax deduction.

The minefield of information has prompted insurance company Budget Direct to examine Australian Taxation Office rules around insurance deductions in an effort to cut the confusion.

“We know how tricky it can be to understand just what insurance can and can’t be claimed at tax time,” said Jonathan Kerr, Budget Direct’s marketing and digital director.

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In some cases, the insurance you protect yourself with can be claimed as a tax deduction.

Tax experts say that for some insurance premiums, the payment — and deductions — must be split between business and personal use. You might be surprised about what is and what isn’t deductible among these five common forms of insurance.

1. INCOME PROTECTION

This only type of life insurance that gives you a tax deduction is income protection cover, which pays you an agreed income if you can’t work through illness or injury.

Life insurer NobleOak’s CEO, Anthony Brown, said the premiums were deductible because income protection benefits paid in the event of a claim were treated as taxable income, unlike death cover or trauma insurance payouts.

“If the policy is outside super the policyholder gets the tax deduction against their personal income,” Mr Brown said. However, there was no deduction for income protection policies held inside superannuation funds, he said.

2. LANDLORD INSURANCE

Property investors can claim a full tax deduction on their landlord insurance cover because it is a direct expense related to an income-earning asset. Investors often prepay the next year’s landlord insurance in May or June to bring forward their tax deduction.

NobleOak CEO Anthony Brown says income protection insurance is deductible if held outside of super.

3. HOME INSURANCE

The only way your home insurance premiums are tax deductible is if part of your home is a place of business, and then the expense would have to be apportioned between private and business use.

The ATO says employees generally “can’t claim a deduction for occupancy expenses, including rent, mortgage interest, council rates and house insurance premiums”.

4. CAR INSURANCE

Insurance premiums for your car can be tax-deductible if the vehicle is used for business purposes such as ride sharing services, visiting clients, carrying bulky work items or travelling between workplaces. However, if it’s also used for personal travel a logbook will be needed to show the split.

Daily travel between work and home is seen as private by the ATO, and not tax deductible.

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5. TRAVEL INSURANCE

Sorry jetsetters, you can’t claim travel insurance premiums even if you are travelling for work. That’s because the items covered by travel insurance — such as illness, theft or losing your bags — are private in nature and not tax deductible.

Originally published as How insurance measures up when you’re chasing tax deductions