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Income Protection

What are the tax implications of Income Protection and Business Expenses insurance?

 

Scenario What tax concessions are available? Are the benefits assessed as income? Are the benefits subject to Capital Gains Tax?
Where an individual owns The individual may be able to claim the Yes – the benefits are assessable to No
The policy on their own life and the premiums are paid by the individual for personal protection purposes Premium as a tax deduction The individual
Where an individual owns the policy on their own life and the premiums are paid by the individual’s employer The employer may be able to claim the premiums and related fringe benefits tax (FBT) as a tax deduction.” Yes (as above) No
Where the trustee of a superannuation fund owns a policy on the life of a fund member (Income Protection insurance only) The Trustee may be able to claim the premium as a tax deduction. At the fund member level:

  • Self-employed and other eligible people can claim their personal super contributions as a tax deduction.
  • Employees can arrange to make pre-tax (salary sacrifice) super contributions.

 

Note: These super contributions will count towards the member’s concessional contribution cap

 Yes (as above) No

  1. Consideration may be monetary or otherwise but does not include premiums paid on the policy.
  2. FBT of 46.5% is payable on the taxable value of the premiums.
  3. The government has proposed to ban the provisions of ‘own occupation’ insurance in all superannuation funds, however at the time of printing this guide this proposal had not yet been legislated.
  4. To qualify as self-employed for this purpose, you must earn less than 10% of your assessable income, reportable fringe benefits and reportable employer super contributions from eligible employment.
  5. Includes a spouse (legally married or de facto including same sex), a former spouse, children under age 18, a financial dependant and a person in an interdependency relationship with the deceased.
  6. Includes a Medicare levy of 1.5%, where not paid via the deceased’s estate.
  7. A defined relative includes:
    1. the person’s spouse, or
    2. the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of that person, or of that person’s spouse, or
    3. the spouse of a person referred to in paragraph (b).
  8. It’s generally unlikely for a capital gain to be higher than the amount otherwise assessable as income.
  9. Applies for the 2012/13 financial year (and post-June 1993 components prior to 1 July 2007) when taken as cash from age 55 and under 60.
  10. A defined relative includes:
    1. the person’s spouse, or
    2. the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of that person, or of that person’s spouse, or
    3. the spouse of a person referred to in paragraph (b).
  11. FBT of 46.5% is payable on the taxable value of the premiums.
  12. It’s generally unlikely for a capital gain to be higher than the amount otherwise assessable as income.
  13. The taxation implications for partnerships, trusts and sole traders may vary depending on the individual circumstances. It is recommended that you seek advice from a professional who is a registered tax agent.