Claiming Tax Deduction For Your Income Protection Premiums in 2013!

Published: July 28, 2013

If you hold an income protection policy, you are generally able to claim a tax deduction on your premiums, allowing you to not only protect your income but also to potentially reduce your tax liability to the Australian Tax Office.

How much tax you receive back is based on your marginal rate of tax. We have included the 2013 tax table below to help you as well as a step by step guide on how to claim your income protection tax deduction.

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If it important to note that while your premiums are tax deductible, any benefit you receive if you go an income protection claim will be assessed as part of your normal income.

This is different to other forms of personal insurance including life insurance, trauma insurance and total and permanent disablement insurance in which your premiums are not tax deductible but your benefit is not assessable.

2013 Tax Table

Taxable Income

Tax on this income

0 – $18,200 $0
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000
$80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000
$180,001 and over $54,547 plus 45c for each $1 over $180,001

Source: ATO website, 26 April 2013

Working example for tax year 2013:

Jerry, a business consultant, earns $150,000 per year, which results in a marginal tax rate of 37%. He decides to take out income protection insurance, at a cost of $1,800 per year.

As a result of his income protection premiums being tax deductible, Jerry is eligible to claim the full $1,800 amount as a tax deduction, reducing his taxable income from $150,000 to $148,200, thereby also reducing his tax liability.

The table below illustrates the difference between his taxable income with and without claiming his income protection insurance premiums:

With Income Protection Insurance

Without Income Protection Insurance

Assessable Income



Income Protection Premiums


Taxable Income



Tax Payable



Post-Tax Income




Based on the above table, Jerry’s post tax income is $107,219, after claiming his income protection premiums, $666 more than if he hadn’t claimed a deduction.

This shows that Jerry received 37c back for every dollar in income protection premiums he paid, when he completed his tax return at the end of the financial year.

Please note that selected life insurers may offer a frequency discount of between 5-8% if you make a one-off annual income protection premium payment rather than making monthly or other payment options offered.

How do I claim the deduction in my tax return?

You can claim your deduction when you complete your end of financial year tax return.

Step 1:

It is advisable that you speak with your accountant or tax agent first as they will be able to help you through this process.

Step 2:

Ensure you receive a statement from your life insurance company detailing what amount is tax deductible. These are generally sent out in July and August and detail the premiums paid between 1/7/2012 and 30/6/2013.

Step 3:

Include these details in the paperwork you submit to your accountant or if you complete your own tax return, include these details in section D15 ‘Other Deductions’.

Please be advised that this is a general guide only and we are not registered tax agents under the Tax Agent Services Act 2009. If you intend to rely on the advice provided to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. Please consult your tax accountant or speak to one of our financial advisers for further information.

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