Is income protection insurance tax-deductible?

Yes, income protection premiums are tax deductible - if you get it outside your super. Here's how it works.


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The Australian Taxation Office (ATO) states that you can claim the cost of any payment made for insurance that covers you against the loss of your income, so your income protection insurance premiums should be tax-deductible if bought as a standalone policy.

DISCLAIMER: This article contains general information and does not consider your personal circumstances. It does not contain tax advice, and you should consult a tax professional to check if the information applies to you.
Tax deductible?Outside superInside super
Premiums you pay
  • Tax-deductible
  • Only tax deductible in certain circumstances

How do I qualify for an income protection tax deduction?

Here's how you can qualify for an income protection tax deduction:

  • Outside of super. The ATO allows you to claim a deduction for the cost of your premiums for income protection if the policy is held outside of your super fund.
  • Super income protection. For funds inside super, it's a bit trickier. Generally, full tax deductions are only available for self-employed workers.

Generally, you can only claim expenses as a tax deduction if they are incurred in the generation of their assessable income and are not of a capital, private or domestic nature.

When is income protection NOT tax-deductible?

You can't claim a deduction for a premium or any part of a premium:

  • If the policy compensates you for incidents with a lump sum payment
  • If the policy is provided through your super and the premiums are paid using your contributions

This generally refers to policies like:

  • Life insurance
  • Trauma insurance
  • Critical illness insurance

Can I claim tax deductions for an income protection policy inside my super?

If you have a policy inside super you can generally receive a tax deduction if you are self-employed. The ATO states that personal contributions towards your super can be claimed as a tax deduction only if less than 10% of your income comes from income as an employee.

2017/2018 financial year changes

From 1 July 2017 tax rules around personal superannuation contributions will change. The 10% rule mentioned above will be removed. This means that a larger portion of taxpayers can make additional concessional contributions (towards their super) up to the concessional contribution limit and claim a tax deduction for doing so.

Source: Mark Chapman. Director of Communications, H & R Block.

What if I'm an employee?

If you are an employee you won't be able to claim a full tax deduction. However, contributions you make towards your super with your pre-tax earnings (e.g. salary sacrifice from your employer that hasn't been taxed yet) are taxed at 15%.

If the same contribution were to be taken out as income you would pay your marginal tax rate (which might be higher than 15%).

Can I bring my premium payments (for next year) forward to receive a deduction this financial year?

  • If you prepay your income protection before 30 June, you can claim your tax deduction in the current financial year, e.g. you pay 12 months of premium in advance to receive a tax deduction.

Let's look at a hypothetical example of how this might work. Brian is a 30-year-old actuary earning $100,000 a year. He has an income protection policy that provides him with up to 75% of his monthly income should he be unable to work for an extended period of time. The premiums are $1,367 per year. In order to claim the tax deduction in the current financial year (2016–17), he has opted to pay the premiums up-front, prior to 30 June.

Prepaying your income protection for immediate tax benefits

How much of a tax deduction can I claim?

The amount of money that you will receive back from your tax claim will depend on:

  • Your income
  • How much you have paid for income protection
  • Your marginal tax rate (the highest tax rate that you pay)

Tax rates for Australian residents 2019–20

Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $90,000 $3,572 plus 32.5c for each $1 over $37,000
$90,001 – $180,000 $20,797 plus 37c for each $1 over $90,000
$180,001 and over $54,097 plus 45c for each $1 over $180,000

Foreign resident tax rates 2020–21

Taxable income Tax on this income
0 – $90,000 32.5c for each $1
$90,001 – $180,000 $29,250 plus 37c for each $1 over $90,000
$180,001 and over $62,550 plus 45c for each $1 over $180,000

Source: ATO

Breakdown of how your deduction is calculated

Example: Tax savings with income protection for the 2019–20 financial year

Here's another hypothetical example. Kylie is a project manager and earns $70,000 annually. Here's how Kylie could save up to $310.50 in her post-tax income after claiming her income protection premiums:

  1. Tax paid without deducting income protection
  2. Tax paid after deducting income protection

How much can I save on my policy outside of super if I claim tax?

This will depend on your annual earnings and marginal tax rate. Consider the examples below for a policy that costs $800 p.a.:

Policyholder's annual earningsAnnual premium to insurerMarginal tax rateTax refundFinal cost of cover
Over $180,000$80045%$360$440
Between $87,001 and $180,000$80037%$296$504
Between $37,001 and $87,000$80032.5%$260$540

Income protection insurance tax-deductible premium costs are unique to income protection insurance in Australia, though they apply only if the benefit payments are paid as a regular payment to replace lost income; further, the benefits paid are treated as income and are therefore taxable in the normal way. If the benefit is paid as a lump sum the premiums are no longer claimable as a tax deduction. This is a big help in managing the ongoing cost of the cover. Other life insurance policies have their own effects on taxation such as the following:

Term life insurance will pay out benefits to your beneficiaries should you die, and to yourself if you're diagnosed with a terminal illness and only have 12 months to live. These benefit payments are generally tax-free. However, this tax-free status can be affected if the benefit is paid out through a superannuation fund or if the benefit is paid to a person who in not considered to be financially dependent on you.

Other insurances such as total and permanent disability and trauma insurance are treated in a similar manner as term life insurance in that there is no taxation deduction allowed for any premium payments but the benefit payments are generally tax-free.

Common questions around income protection insurance and tax

Are income protection insurance premiums tax-deductible?YesProvided the benefit is paid in regular instalments replacing a regular income
Are the benefits paid under an income protection policy taxable?YesThe benefit payments are treated as income by the Australian Taxation Office and are therefore taxable
Do I pay GST on income protection premium costs?NoGST is only payable on fire and general types of insurance, not life insurance
DISCLAIMER: This article contains general advice and does not consider your own personal circumstances. It is not tax advice and the general nature of this material may not be applicable to you. You should obtain professional advice and verify our interpretation before relying on the information contained in our article.

Compare income protection policies and get quotes

Name Product Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period Options
AAMI Income Protection
5 years
14, 28, 60 or 90 days
AAMI customers save 5% on income protection.
Insuranceline Rate Saver Income Protection
5 years
14, 28, 60 or 90 days
Get a $100 bonus gift after 2 months. Plus, and get 12 months cover for the price of 11 if you pay annually. T&Cs apply.
NobleOak Income Protection
Up to 65
30 or 90 days
First month free for NobleOak Income Protection Insurance. T&Cs apply.
Suncorp Income Protection
5 years
14, 28, 60 or 90 days
Existing Suncorp customers can get a 5% discount.

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Read the guide to pre-paying income protection insurance for a tax-deduction.

Prefer to speak to a tax agent about your deductions?

Data indicated here is updated regularly
Name Product Fee for unlimited income items (Wages) Deduction Item Fees Online tax returns
FinTax Group
$0 for up to $1000 of deductions
$65 for an investment property
Australia wide
Lodge individual & company tax returns online or in-person. Fast online form with additional options to complete tax returns for investment properties, sole trader tax and share investments.
Refund Express
$0 when you purchase the $49 income package
Australia wide
Option to pay with your tax refund for an extra fee of $10 for basic returns. Lodge individual & company tax returns. Fast online form & free live chat.
Everest Tax & Business Advisors
Business tax: starting from $250
General deductions: $0
For motor vehicle expenses: $15
Australia wide
A boutique firm that provides personalised experiences for all customers. Ideal option for individuals and small businesses based in Perth.
One Minute Tax
Australia wide
Option to pay with your tax refund for an extra fee of $20. Lodge individual & company tax returns. Fast online form & free live chat. Special offer for business owners: Register your new company for only $499 (includes $488 worth of government fees and $100 cashback into your new business bank account). Click 'Go to site' to find out more. T&Cs apply.
$0 for up to 2 deductions
$29 for additional deductions
Australia wide
Option to pay with your tax refund for an extra fee of $29. Online and in-person tax services for individuals, sole traders and companies.
Hotman & Brown
Business tax: starting from $179
$29 for up to 2 deductions
Additional $29 for extra deductions
Option to pay with your tax refund for an extra fee of $29. Basic tax returns over the phone Australia-wide. In-person individual and business tax returns in Melbourne.
Bennetts Tax & BAS service
finder Exclusive: $5 discount
$0 for all work related deductions
Australia wide
finder Exclusive: $5 discount when you apply for a tax return with Bennetts Tax through finder. Click 'Go to site' and complete the contact form to find out more. Income item fee includes returns on interest, dividends, Superannuation and pension. A flexible option for individuals, sole traders and companies.

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*Benefits will be taxed if your premiums are tax-deductible. Check with your super fund. Note: This table is only a general guide and doesn't take into account your specific circumstances. It's a good idea to seek professional advice from a qualified tax consultant before applying the information to your personal circumstances.

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2 Responses

    Default Gravatar
    PeterAugust 11, 2016

    I have a question on Tax Payable on Income Protection Payments.
    My wife was recently required to finish work due to serious illness and was paid a TPD payment, Lump Sum Superannuation and was also paid out in advance to 1/8/17 for an Income Protection Policy. She was initially paid Monthly by the Insurance Company (TAL) who then decided to Pay the Policy out. This total amount of Income Protection was included in my PAYG Summary for 2015/16 Financial year. Should this payment be included as assessable Income even though it relates to payment for a future date.



      Avatarfinder Customer Care
      RichardAugust 11, 2016Staff

      Hi Peter,

      Thanks for your question. is a comparison service and we are not permitted to provide our users with personalised financial advice. You may wish to contact the Insurance Law Service.

      All the best,

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