Worried About Taxes Under Your Income Protection Insurance Plan?
Income protection Insurance was formerly known as Permanent Health Insurance (PHI). Insurance protection plan is an insurance policy that protects against temporary or permanent disability. However, tax deductions are available for premiums on Insurance.
General rules for claiming Tax deduction on insurance
Generally, if it is being shown that the insurance relates to earning assessable income, the ATO allows a deduction on insurance premiums.
The ATO states that an individual can claim the premium cost you pay for income insurance and that individual must include any payments received under the policy of their tax return. These payments should be declared for the financial year in which the benefits are received.
The deciding factor for Tax reduction on protection insurance is based on to what extent the insured event affects a taxpayer's ability to earn assessable income. For instance, for a self-employed individual, it can mean that a disability insurance against loss of income could cause a deduction for the premiums paid.
Combined insurance covers
Certain times combined insurance plans which cover both loss of income and capital can lead to difficulties in working out the extent of tax for the premium paid. For example, this insurance cover is usually offered with combined death and disability cover. So, there is a form of "capital" that is covered. The capital is the value allowed for the death of a person, or that person's injury or disablement. These are generally paid as a lump sum. In such cases, only the income protection insurance is tax deductible.
After that,what?
An individual must refer to the insurance contract, including any product disclosure statements from the insurance provider, to make sure if deduction applies on the specified product. So that he/she may completely understand the type of cover sought and if there are any "capital" components.
Calculation of Tax deduction on income protection insurance
How much an individual saves depends on the marginal tax rate.Premiums are fully tax deductible to individuals. When tax returns are complete, an individual will have to claim his/her premiums as a work deduction.
If an individual earns between $80,000 and $180,000pa. For incomes between $80,000 and $180,000 the marginal tax rate is 37%. If the policy costs $1,000 the individual would...
Pay the insurer $ 1,000
Receive a tax refund of - $ 370
Receive 20% back from Insurance Watch - $ 200
NET COST of Income Protection in first year (a saving of 67%) $ 4300
________________________________________
For income above $180,000 the marginal tax rate is 45% and the net cost would be $350 - a saving of 65%.
________________________________________
For incomes between $37,000 and $80,000 the marginal tax rate is 30% and the net cost would be $500 - a saving of 50%.
General rules for claiming Tax deduction on insurance
Generally, if it is being shown that the insurance relates to earning assessable income, the ATO allows a deduction on insurance premiums.
The ATO states that an individual can claim the premium cost you pay for income insurance and that individual must include any payments received under the policy of their tax return. These payments should be declared for the financial year in which the benefits are received.
The deciding factor for Tax reduction on protection insurance is based on to what extent the insured event affects a taxpayer's ability to earn assessable income. For instance, for a self-employed individual, it can mean that a disability insurance against loss of income could cause a deduction for the premiums paid.
Combined insurance covers
Certain times combined insurance plans which cover both loss of income and capital can lead to difficulties in working out the extent of tax for the premium paid. For example, this insurance cover is usually offered with combined death and disability cover. So, there is a form of "capital" that is covered. The capital is the value allowed for the death of a person, or that person's injury or disablement. These are generally paid as a lump sum. In such cases, only the income protection insurance is tax deductible.
After that,what?
An individual must refer to the insurance contract, including any product disclosure statements from the insurance provider, to make sure if deduction applies on the specified product. So that he/she may completely understand the type of cover sought and if there are any "capital" components.
Calculation of Tax deduction on income protection insurance
How much an individual saves depends on the marginal tax rate.Premiums are fully tax deductible to individuals. When tax returns are complete, an individual will have to claim his/her premiums as a work deduction.
If an individual earns between $80,000 and $180,000pa. For incomes between $80,000 and $180,000 the marginal tax rate is 37%. If the policy costs $1,000 the individual would...
Pay the insurer $ 1,000
Receive a tax refund of - $ 370
Receive 20% back from Insurance Watch - $ 200
NET COST of Income Protection in first year (a saving of 67%) $ 4300
________________________________________
For income above $180,000 the marginal tax rate is 45% and the net cost would be $350 - a saving of 65%.
________________________________________
For incomes between $37,000 and $80,000 the marginal tax rate is 30% and the net cost would be $500 - a saving of 50%.
Source...