Are income protection insurance premiums tax deductible in Australia?

Yes. Income protection insurance premiums are generally tax deductible for Australian residents, provided the policy covers your income from employment or business activities and is not held inside your superannuation fund.

Deductible: Premiums on income protection policies held in your own name (outside of super) are deductible under section 8-1 of the ITAA 1997. This is because if you make a claim, the benefit payments you receive are assessable income — so the premiums are the cost of earning that potential income, making them deductible.

Not deductible: Premiums on income protection policies held inside your superannuation fund are not deductible by you personally — they are paid from pre-tax super contributions, and the deductibility is handled at the fund level. Similarly, premiums on life insurance, total and permanent disability (TPD) insurance (lump sum), and trauma insurance are generally not deductible.

Claims are taxable income: When you receive an income protection benefit payment, those payments are treated as assessable income and must be declared on your tax return. Tax is withheld if paid by an insurer or you may need to pay tax on the payments. This is the flipside of the premium deduction.

Record-keeping: Keep your annual premium notice or certificate from the insurer. If you pay monthly premiums, total them for the year and keep all receipts.