If you are considering purchasing a policy to protect your income from health issues, there may be potential tax advantages. This can help reduce the cost of your premiums and reduce any earnings you lose by taking time off work.
Your income protection policy might qualify for a tax deduction, but this is not guaranteed.
Your income protection policy might qualify for a tax deduction, but this is not guaranteed. Not all policies are eligible for tax deductions and not all premiums are eligible for the same amount of tax relief. There are specific rules and regulations to follow if you want to claim a deduction on your income protection policy premium payment. The premium must be paid with after-tax dollars and can’t exceed $5,000 per year (or $10,000 if it’s in addition to another form of superannuation).
You should also be aware that some types of life insurance products aren’t eligible for these kinds of benefits at all – so be sure to shop around before making any decisions about what kind of cover suits you best!
If you are an employee and pay your own premiums – using after-tax dollars – you may be able to claim a deduction.
If you are an employee, paying your own premiums is a way of reducing the amount of income protection insurance that is deducted from your pay. This can be done by:
- Using after-tax dollars to pay for the policy; or
- Paying through a salary sacrifice arrangement (i.e., contributing what would have been taxable income).
Alternatively, you can ask your employer to pay the premiums on your behalf through a salary sacrifice arrangement.
If you want to take advantage of these tax breaks, it’s important to know that salary sacrifice arrangements are only available to employees and not self-employed people. This means that if you plan on earning income from your own business or other sources, your employer will be required to pay the premiums on their behalf through a salary sacrifice arrangement.
Salary sacrifice arrangements are tax-free and have no impact on the amount of Income protection tax that an employee pays in the following year (unless they’re also claiming other benefits). However, they do mean that someone else pays some or all of what would otherwise be paid out by their employer as premiums.
It’s important to remember that any premium paid by your employer as part of a salary sacrifice arrangement will be included in your taxable income.
You may be surprised to learn that salary sacrifice arrangements are not tax-free. This is because your employer pays the premium for the policy, and it will be included in your taxable income. Generally speaking, any premium paid by your employer as part of a salary sacrifice arrangement will be included in your taxable income.
In other words: if you’re planning on taking out a retirement plan or annuity and want to save tax-free money on premiums paid through this kind of plan, make sure that you understand how these plans work before signing up!
If you are self-employed, you may be eligible for a tax deduction for the cost of income protection premiums.
If you are self-employed, you may be eligible for a tax deduction for the cost of income protection premiums.
If your employer pays for these premiums on your behalf, they can claim this as an expense in their own income tax return.
If you pay for them yourself and keep receipts (or if this is an allowance), then the insurer should allow it to be claimed as a deduction against your own income tax liability in line with Schedule A or B of their financial statement forms (depending on whether they’re registered in Australia).
There may be potential tax advantages when it comes to buying income protection insurance.
There may be potential tax advantages when it comes to buying income protection insurance.
- You may be able to claim a deduction for the cost of premiums.
- You can also claim a deduction if you are an employee, self-employed or both.
Conclusion
The good news is that there are potential tax advantages when it comes to buying income protection insurance. But there are also some important things to keep in mind before taking the plunge – not least of which is knowing what kind of coverage you need and how much this might cost. If you’re not sure, then contact us today for a no-obligation chat about what options might be right for you!
