Have you ever wondered if you are making the most out of your annual tax return? You may find yourself wondering if you are entitled to claim a deduction for a number of insurance premiums or products. Of course, this is circumstance tested, however, there is a chance that you can. Continue reading and find which of the five insurances you may be able to claim on your next tax return. However, the following information has been generalised, and it does not consider your individual tax and business circumstances. It is always best you discuss this with your nominated taxation professional. They are experts in helping you receive the best tax return possible.
In general, the Australian Taxation Office does allow tax deductions for insurance premiums. However, you need to provide evidence that your insurance cover does relate to your assessable income and your role. This also means that life insurance, trauma insurance, or critical care insurance are usually not able to be claimed as a tax deduction. Income protection insurance may be allowed as a tax deduction for premiums. In fact, the ATO has allowed such claims in certain circumstances. Even though the insurance policy does not itself “earn” income for the taxpayer.
Insurances that can be claimed as a tax deduction for your annual tax return
1. Home insurance
The Australian Taxation Office states that you cannot claim a deduction for occupancy expenses. Which includes rent, mortgage interest, council rates, and house insurance premiums. This rule also applies if your employer allows you to work from home.
However, you can claim a portion of your home insurance if you are running a business from your home. The Australian Taxation Offices states that you can claim the occupancy expenses if your home is your principal workplace. And you have a dedicated work area. Depending on your circumstance, the part of your home that is your workplace can include:
- Office for small businesses
- A tradesperson / craftsperson home workshop
- Doctor or dentist or any medical practitioner who has their surgery or consulting room within their home.
To claim your home insurance, you compare the floor area of your business working space to the rest of your house. Your tax deduction will be the proportion of your working area.
2. Personal superannuation contributions
Your personal superannuation contributions from your after-tax income can be a tax deduction if you are under 75. You need to complete some special Australian Taxation Office forms (including the s290-170) before you lodge your tax return. In addition, you need acknowledgment from the trustee of the fund. Have a chat with your professional tax accountant or bookkeeper to see how this contribution deduction can apply to your circumstances.
3. Car insurance
If you are using your vehicle to perform your job as an employee (such as travelling between job sites and workplaces) or in running your business, or to earn income (like ride-sharing services) then you may be eligible to claim your car insurance. It is required to apportion your car expenses so you do not claim expenses that are from personal use. There are two methods to work this out:
Cents per kilometre
You can claim up to 5,000 business kilometres per car using the latest ATO rate (please talk to your professional tax accountant for the latest rate for the current tax year). You need to be able to provide evidence of how you worked out your kilometres. With this method, the rate is calculated to an average of car operating costs (including insurance). Also, you cannot claim a deduction for a portion of your insurance premiums.
Using this method, your claim is based on the business use percentage of your car. To work this percentage out, you must keep a valid logbook capturing the odometer readings for a minimum of 12 weeks. To calculate the deductible amount, the business use percentage is then multiplied by your cars running costs including the insurance premiums.
4. Income protection insurance
You can generally claim a deduction for income protection insurance if it is taken out as a separate policy from your superannuation. And you can claim the cost of the premium you pay for the income protection insurance against the loss of your income. You will need to include the payment you receive under a policy on your tax return.
Unfortunately, if your income protection is part of another insurance product (for example, life, trauma or critical care insurance), you will only be able to claim the percentage that is attributed to the income protection. In addition, if your income protection premiums are paid via your superannuation or are deducted from your superannuation contribution then you will not be able to claim a deduction.
5. Home insurance on investment properties
You can claim expense relating to your investment property. This is only valid for periods that it is rented or available for rent. If you’re only renting out part of your property, you can only claim part of your building, contents and public liability insurance based on the floor area calculation. The amount of insurance you can claim will be in line with the proportion of rented out space.
6. Travel insurance
Travel insurance costs are generally for private use, and therefore not tax-deductible.
Tax time can be stressful and cause a lot of confusion for everyone needing to lodge a tax return. When thinking about insurance premiums, it can be overwhelming to navigate what can be claimed as a tax deduction – especially when there are so many different circumstances that need to be adhered to. Especially for those who work from home or use their own personal vehicle for work purposes. As a result, taxpayers are making simple mistakes when they are claiming tax deductions for insurance expenses. Our Australian income tax system is based on self-assessment. This means that you are accountable for being accurate, and all amounts that you are claiming must be backed up with the correct evidence and bookkeeping.
This evidence is required when you are audited. Records can include receipts for equipment or asset purchases and sales, expense claims and repairs; payment summaries; sufficiently detailed bank statements; contracts; and tenant rental records. Also includes car logbooks. If you’re unsure about which insurance premiums you can make a tax deduction, then give us a call at our Eastern Suburbs tax accountant practice. We work effortlessly to understand and simplify all the tax rules for you and explain what your business can be eligible for. RT Accounting and Taxation Service can help you focus on your business while you leave the boring tax stuff to us. We want you to have the confidence to run your business while our tax experts work on ensuring you are up-to-date with your tax requirements.