Are Business Insurance Premiums Tax Deductible?
In most cases, the premiums you pay for business insurance are tax deductible as long as you can prove that they are connected to your ability to earn an assessable income. In the words of the ATO, “you can claim the cost of any premiums you pay for insurance against the loss of your income”.
Any insurance you take out to protect a business’ capacity to earn an income or to protect a business’ assets are therefore tax deductible. This includes premiums for workers compensation insurance, professional indemnity insurance, fire damage, theft cover, public liability insurance, loss of profits and commercial motor vehicle insurance.
Keyman Insurance Tax Treatment
Premiums for key person or key man insurance, a type of policy which offers a benefit payment when an important company employee is incapacitated and no longer able to work, can only sometimes be claimed as a tax deduction. If the key person cover was taken out to protect your business’ revenue, your premiums are tax deductible. However, you can’t claim a deduction if you took out the policy to protect against a capital loss.
Income Protection Tax Treatment
If you take out income protection insurance to cover you against a loss of income, the premiums you pay on this type of policy can also be claimed as tax deductions. Business expenses insurance premiums are also considered to be tax deductible.
For more information on which insurance premiums are and aren’t tax deductible, speak to your accountant or financial adviser.
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More on Key Person Insurance Tax Treatment
As mentioned above, the treatment of key person insurance at tax time can be a little confusing. This type of cover is designed to provide cover in the instance that a key company employee, for example a director or sales manager, either dies or becomes permanently disabled and is unable to return to work. Key person insurance is designed to provide a benefit payment in such instances, which can then be used to cover any loss resulting from the employee’s departure. This can include hiring and training a replacement, repaying debts or ensuring a smooth transition of business ownership.
However, the purpose for which you take out key person insurance cover will determine whether or not your premiums are tax deductible. If you take out a policy for capital protection—for example, you use your benefit payment to help make up for the loss of business good will—you typically will not be able to claim your premiums as a deduction.
However, you can get money back come tax time if you use your key person insurance benefit payment for revenue protection. In other words, you spend the benefit to minimise loss of revenue, such as to cover the cost of finding, recruiting and training a replacement employee.
Other Types of Business Tax Deductions
Business owners can also take advantage of many other possible deductions at tax time. These include:
- Accounting, bookkeeping and BAS preparation
- Advertising and marketing expenses
- Bank fees and other charges
- The costs of running business vehicles
- Council rates and fees
- Electricity, gas, fuel etc
- Interest on business loans or overdrafts
- Legal fees
- Office expenses and stationery
- Registrations and licences
- Business travel
- Computers and software programs
- Depreciation of plant and equipment, business vehicles
- Lease fees
- Service and repairs to plant and equipment
- Employee allowances, bonuses and commissions
- Labour hire fees
- Professional fees or registrations
- Recruitment costs
- Staff training
- Uniforms and protective clothing
For more information on the expenses you can claim, visit the ATO website.
Understanding Business Insurance Premiums
Business insurance premiums is the sum of money you need to pay regularly to your insurance provider to ensure you have cover in place under your insurance policy. If you fail to pay your premiums, your business insurance cover will cease. Depending on your insurer, you may have flexible options to choose when to pay your premium, such as weekly, monthly or annually.
Premiums are calculated based on the risk you pose to an insurer, or in other words the likelihood that the insurer will have to pay out a claim to you in the future. In terms of business insurance, there are a number of factors that can influence exactly how much your cover will cost.
For starters, consider the level of cover you will be taking out. Are you looking for a policy that provides cover against basic risks, such as fire damage and theft, or do you want a comprehensive business insurance plan that protects you against an array of potential problems? How much do you want to insure your business for? Factors like your annual turnover and the number of employees you have can also be contributing factors.
Then there’s the nature of your work to be taken into account. A construction site will obviously be exposed to a completely different range of risks than a small office-based business, while some businesses will need cover for expensive and specialised equipment that others won’t.
In some cases, where your business premises are located can also influence the cost of your premiums. For example, as some parts of the country are more prone to violent storms, businesses located in those areas may be considered to be a larger risk of suffering expensive storm damage.
Business Insurance Tax Deduction FAQs
What sort of insurance cover do I need?
This will depend on a whole host of factors including the type and size of your business, your annual turnover and the risks you face. You’ll also need to consider the likelihood of those risks becoming reality and what the financial consequences would be when they did. Answering these questions and perhaps speaking with others in your industry will give you a better idea of the types of cover you need.
What forms of business insurance are tax deductible?
You can typically claim the following insurance premiums as tax deductions: building insurance, theft cover, public liability insurance, professional indemnity insurance, workers compensation insurance, loss of profits insurance, key person insurance (when taken out for revenue protection purposes) and commercial motor vehicle insurance.
I need help understanding business insurance? What should I do?
First of all, take advantage of the wealth of information you can find here at finder.com.au. We’ve got articles on just about every business insurance matter you can imagine, so have a look around. If you need further help understanding the ins and outs of business insurance, don’t hesitate to enlist the services of an experience insurance consultant.
Business insurance is an essential consideration for just about every business, from small operations to large corporations. However, making sure that you’re aware of your insurance obligations at tax time is vital to help ensure the growth and success of your business.