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Why aren't you claiming your Life Insurance as a tax deduction?

Paul Davies | July 03, 2017

Once again, a new financial year brings a flurry of new laws into place. Whilst there are a myriad of super changes which aren't exactly popular with many Australians, there are also some that have flown under the radar, that can be beneficial to you depending on your personal circumstances.


So, prior to July 1 2017, unless you are self employed, you were (generally) unable to claim your Life Insurance premiums as a tax deduction. 


Now, as of July 1 2017, if you are an employee, you have the ability to claim your Life Insurance and Income Protection premiums as a tax deduction, which in many cases can help at the end of the year with your overall tax. 


There are some criteria that needs to be met, such as being gainfully employed (working at least 40 hours in a 30 day period) and being under age 70. 


So, with these recent tax changes, if you are an employee and have Life Insurance (from a broker, direct insurer, etc) and are not able to claim your premiums as a tax deduction, you need to review what you have. For the very least, knowing what you are entitled to. 


In this instance, we need the mandatory disclaimer that you all love, which is this is general advice only and your personal needs and objectives need to be taken into account before acting on any such advice. I'm happy to chat if you have more questions. 


Happy New Year.

Comments

Paul,
I've always been under the impression that an employed person could claim the cost of Income Protection insurance as a tax deduction. That is not new. This is because in the event of a claim, the payments from the insurer would be treated as taxable income as the money replaces a person's wages.
If you now say that Life Insurance premiums are tax deductible, I'm guessing that any claim would form taxable income in the estate? In the event of a large payout, the tax payable (if it is treated as income) would likely be horrendous.
Kindly provide a complete update regarding the tax treatment.

Hi Paul

Very interesting article, I was not aware of this. Can you please point me to the legislation that outlines the deductability of life insurance premiums paid personally? This would be beneficial to many of my clients.

Thanks

Abby

Stephen, You are correct in saying the income protection is tax deductible, however by simply having the ownership of your life insurance as superannuation, this allows the individual to make premium payments as personal super contributions (as per tax changes from 1 July 2017), hence allowing the tax deduction.

Obviously, with everything, this may not suit everyone, as there are a variety of other personal circumstances to take into account, and this is only to be considered general advice.
Abby, the ATO Reference is: https://www.ato.gov.au/Individuals/Super/In-detail/Growing/Claiming-deductions-for-personal-super-contributions/

Further to this, I will post another article around paying premiums from an actual super fund, using the account balance to fund the cost of insurance. This gives a 15% reduction in premiums and reduces the overall impact on cashflow to the individual.

(Disclaimer: Once again, this is general advice only. Stephen & Abby, I am more than happy to go through it with you on a personal level, or help educate your clients with all of the above on how to achieve this.)

I hope that helps.
Regards, Paul

About Me

Paul Davies

Current Rating: 5 / 5
Insurance Broker
Jarickson Life Insurance Brokers
http://www.jarickson.com.au
Rouse Hill, New South Wales
0411 511958
As a specialist in the insurance industry, my role is to help you find the right life insurer for your particular circumstance, in language that everyone can understand.

The difference between having a specialist help you and someone over the phone or website is at claim time. You pay premiums and you want to make sure that the Right Amount of Money gets to the Right People at the Right Time.

Everyone has different family and business dynamics, and it's very difficult to find the right type of Life Insurance, Income Protection or even Keyperson insurance if you don't work with insurers every day.

Since 2001, I have specialised in personal insurance within the financial planning industry with several awards such as Financial Adviser of the Year through Investors Choice Magazine.