BT reports it has been fielding enquiries from advisers regarding the proportion of income protection insurance premiums their clients can claim as an income tax deduction.
These enquiries coincide with the more detailed annual statements that have been sent this year to clients who hold IP cover outside of superannuation.
According to BT’s Product Technical Senior Manager, Benjamin Martin, the additional information contained on these clients’ statements are intended to assist clients and their accountants with determining the appropriate amount of IP premium that should be claimed as a tax deduction.
“It’s generally accepted that you can claim the cost of a deduction to the extent it is incurred in gaining or producing your assessable income,” said Martin, who added that if the IP policy provides benefits of an income and capital nature, only that part of the IP premium that relates to the income benefit is deductible for income tax purposes.
…it’s important to distinguish between which part of the IP premium is income, and which is capital
Noting individuals who lodge their own tax returns are generally required do so by 31 October 2020 unless they have an arrangement with the ATO or their tax agent, Martin added, “IP products have evolved over time. Accordingly, at tax time, it’s important to distinguish between which part of the IP premium is income, and which is capital, in nature. The statements have been enhanced to reflect this breakdown, however clients should seek their own tax advice.”
Martin also reiterated that if a claim is payable, any income benefit for the loss of income from these policies is taxable: “If your client has claimed IP premiums as an income tax deduction, the income benefit component received should be disclosed as assessable income. As always, make sure expert tax advice is being obtained when it comes to these tax matters,” he concluded.