Income Protection Deduction ATO - What Is Allowable?
Copyright (c) 2014 Kerrie Peacock
Income protection insurance will provide you with a regular benefit in case you are unable to work due to illness or serious injury. You will usually get covered for 75 per cent of your salary, and some policies may include bonuses and commissions. This means you will be able to continue meeting your financial obligations and day to day expenses should you find yourself suddenly out of work. When you take up this cover, you may also be able to get income protection deduction. ATO normally offers certain deductions for income protection cover.
Deductions
When you pay premiums for your income protection cover, you can claim an income protection deduction. ATO considers the premiums which you pay for this policy will lead to your getting an income in the future, and therefore allows the deduction. In case your policy has been bundled with other policies so that part of your premium goes to pay for a lump sum cover for disablement, injury or death, then only the part of the premium that goes towards paying for income protection is tax deductible.
If your income protection is combined with a death or disability cover, you should ask your insurance provider to advise you on what portion of the premium is tax deductible. In the event that your insurance provider is unable to demonstrate how much of the premium goes towards paying for your income protection, you will not be able to make any claim for tax deduction.
Claims
The ATO requires that once you receive payment against the loss of your income, this payment should be included when you make your tax returns. These payments need to be included in the financial year within which they are received. If you have a business and your premiums go towards paying to protect the income earning level of the business, you might be able to claim an income protection insurance deduction. ATO will allow the deductions as long as you can demonstrate that the insurance is related to earning an income that can be assessed.
Income Protection Through Super
If you take out your income protection insurance through your superannuation fund, the premiums you pay are not tax deductible. Tax deductibility of premiums only applies to income protection policies taken outside of the super fund. However, you will be able to get your policy at a cheaper rate when it is within a super fund. This is because the fund usually purchases a group policy at wholesale price and will therefore offer it to you at competitive rates. You also do not have to go through a medical exam, nor will specific individual questions be asked of you because it is a group policy.
Types Of Income Protection
The agreed value income protection policy covers you based on the income you were earning at the time of applying for the policy. Your insurance provider will require your financial documents at the time of application, but when making a claim none of this documentation will be required. With the indemnity value income protection insurance, your income is assessed at the time that you make your claim and your benefit will be based on your current income.
About the Author
Kerrie Peacock is an adept personal insurance researcher and you can benefit from her extensive research. For more information and tips on what can work for you, visit http://www.mecovered.com.au/income-protection-deduction-ato .
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