Are insurance payments tax deductible? ATO answers explained

Tax time can mean stress and confusion for everyone needing to lodge a return. It can be especially overwhelming for those who work non-traditional jobs, like those who work from home or who use their vehicle for work.

Budget Direct Home Insurance has taken the hassle out of insurance at tax time by compiling Australian Tax Office information about some insurance costs. We’ve included tips on what you can and cannot claim.

Is home insurance tax deductible?


The ATO says
As a general rule you can’t claim a deduction for occupancy expenses, including rent, mortgage interest, council rates and house insurance premiums.

However
You may be able to claim part of your home insurance if your home is also your principal place of business – that is, you run your business from home, and a room is set aside exclusively for business activities.

Examples include:

  • a small business operator whose main office is in their home
  • a tradesperson or craftsperson who has their workshop at home
  • a doctor or dentist who has their surgery or consulting room at home.

You can work out how much to claim by looking at the floor area (as a proportion of the floor area of your whole home). The proportion of the work area will be the same proportion of insurance you can claim.

Note
You may have to pay CGT (Capital Gains Tax) when you sell your home if you have used any part of it for business purposes. You don’t get the full main residence exemption if your home is your principal place of business, although you’re probably entitled to a partial exemption.

Is home insurance on investment properties tax deductible?


The ATO says

You can claim expenses relating to your rental property but only for the period your property was rented or available for rent; for example, advertised for rent.

If you rent out part of your property you can claim part of your building, contents and public liability insurance by using the floor-area calculation to determine the proportion of the property that you rent out. The proportion of the insurance you can claim will be the same proportion of the rented out space.

Is travel insurance tax deductible if my trips were for business?


The ATO says

Travel insurance – travel insurance policies invariably cover items generally private in nature, such as illness, loss of baggage and theft. So, travel insurance costs are generally private in nature and not deductible.

Is car insurance tax deductible?


The ATO says
You can claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee, for example, to:

  • carry bulky tools or equipment (such as an extension ladder or cello) which your employer requires you to use for work and cannot leave at work
  • attend conferences or meetings
  • deliver items or collect supplies
  • travel between two separate places of employment, provided one of the places is not your home (for example, when you have a second job)
  • travel from your normal workplace to an alternative workplace and back to your normal workplace or directly home
  • travel from your home to an alternative workplace and then to your normal workplace or directly home (for example, if you travel to a client’s premises)
  • perform itinerant work. (AKA if you drive an uber)

Note
If you use your car for both business and private use, you’ll need to establish the percentage your “business kilometres” make up of your total kilometres in order to determine how much car insurance you can deduct.

You can work this out by one of two methods:

1. Cents per kilometre

  • you can claim a maximum of 5,000 business kilometres per car
  • you do not need written evidence to show how many kilometres you have travelled, but the ATO may ask you to show how you worked out your business kilometres

2. Logbook method

  • keep a pre-printed logbook (available from stationery suppliers) or make your own logbook
  • have written evidence of your fuel and oil costs, or odometer readings on which your estimates are based
  • have written evidence for all your other expenses.

Is income protection tax deductible?


The ATO says
You can claim the cost of premiums you pay for insurance against the loss of your income. You must include any payment you receive under such a policy on your tax return.

If your income protection is tied to another insurance product such as life insurance, you will only be able to claim the part of the premium attributed to the income protection benefit.

The following table shows what you could potentially save on a premium of $1,000 a year by claiming it as a tax deduction:

* For illustrative purposes only.
† For 2017/18 financial year. Excludes the Medicare Levy and the effect of any Low Income Tax Offset.
‡ The deduction will depend on the taxpayer’s circumstances.

How do I calculate the percentage of insurance I can claim on tax?


The ATO says
Australia’s income tax system is based on self-assessment. This means that information you provide to the ATO is initially accepted as being true and correct when you lodge your tax return and other forms on which you disclose your tax liability. The self-assessment system places the onus on you to ensure your tax return complies with taxation laws.

The amount you are able to claim is based upon the split between business and personal expenses. You’ll need to keep accurate records to demonstrate your business related expenses and how you’ve calculated these expenses.

The ATO recommends keeping your written evidence for five years after you lodge your return.

Key Takeaways

  • Taxpayers are making mistakes when claiming insurance. It is hard to know what is or isn’t allowable, and what portion of insurance is claimable
  • You may be able to claim part of your home insurance as an ‘occupancy expense’ tax deduction
  • If you use your car for both personal and work purposes you will need to apportion any car expenses and not claim the personal component
  • You can claim the cost of income protection premiums you pay for insurance against the loss of your income
  • Australia’s income tax system is based on self-assessment, meaning that you are accountable for working out how much you can claim

https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/

https://www.ato.gov.au/General/Property/Property-used-in-running-a-business/Running-your-business-from-home/

https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Rental-property-expenses/

https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Deductions-for-specific-industries-and-occupations/Travel-agent-employees–work-related-expenses/?page=2

https://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/Motor-vehicle-expenses/Claiming-motor-vehicle-expenses-as-a-sole-trader/Logbook-method/

https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Vehicle-and-travel-expenses/Car-expenses/

https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-deductions/Income-protection-insurance/

https://www.ato.gov.au/individuals/ind/self-assessment-and-the-taxpayer/

This post was brought to you by Budget Direct Home Insurance

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