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 and what you may and may not claim.

Australian tax law is complex and what you can deduct will vary depending on your individual circumstances. Please ensure you seek advice from your accountant or tax advisor.

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. Generally, this rule also applies where your employer allows you to work from home.

However
In limited circumstances, you may be able to claim a deduction for part of your occupancy expenses. One example is where 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.

Whether part of your home is a principal place of business depends on your particular circumstances, but could include:

  • a small business operator whose main office is in their home;
  • a tradesperson or craftsperson who has their workshop at home; or
  • 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 that is your place of business (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 as you don’t get the full main residence exemption, although you’re probably entitled to a partial exemption.

Is home insurance on investment properties tax deductible?


The ATO says

You can claim your 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 generally 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 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, including car insurance, in limited circumstances.  These may include where you are using your own car to earn income (such as operating ride-sharing services) or in the course of performing your job as an employee (such as travelling between workplaces).

As you probably use your car for both business and private use, you need to apportion your car expenses so as to not claim the personal component. You can do this using one of two methods:

1. Cents per kilometre

  • you can claim a maximum of 5,000 business kilometres per car using the ATO set rate of 66 cents per kilometre (for the 2017/2018 income year).
    • you do not need written evidence of your business kilometres, but do need to be able to show how you worked these out (for example, by producing diary records of work-related trips).
  • as the ATO set rate is calculated with regard to average car operating costs, including insurance, you cannot also claim a deduction for a portion of your car insurance premiums.

2. Logbook method

  • your claim is based on the business-use percentage of your car.to work out your business-use percentage, you need to maintain a valid logbook and keep odometer readings for at least 12 weeks.
    • this business use percentage is then multiplied by your car’s running costs, including insurance, to calculate the deductible amount.
  • you must follow specific ATO record keeping requirements for both your logbooks and substantiating the car operating costs you claim deductions for.

Note

Different rules are likely to apply where you drive a motorcycle, your vehicle is designed to carry at least 1 tonne or it can carry 9 or more passengers.

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.

However

If your income protection is tied to another insurance product (such as life, trauma or critical care insurance), you can only claim that part of your premium that is attributed to the income protection benefit.  Your insurer should be able to advise you of this amount.

If your income protection premiums are paid through your superannuation or deducted from your superannuation contributions, you cannot claim a deduction.

How do I support a tax deduction for my insurance costs?


The ATO says

The amount you are able to claim is generally based upon the split between your business and personal expenses.

As Australia’s income tax system is based on self-assessment, the information you provide to the ATO is initially accepted as being true and correct.  This places the onus on you to ensure your tax return complies with taxation laws and that you can support the claims that you make.

Therefore, you’ll need to keep accurate records to demonstrate your business related expenses and how you’ve calculated these expenses.  

The ATO generally requires you to keep your written evidence for at least five years after you lodge your tax return.

Key Takeaways

  • It can be hard to know what is or isn’t allowable, and what portion of insurance is claimable.  This can result in Taxpayers making mistakes when claiming a tax deduction for their insurance expenses.
  • In limited circumstances, 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 apply the log book method to apportion any car expenses, including insurance, so as to not claim the personal component.  No deduction for insurance is available if you use the cents per kilometre method.
  • You can claim the cost of income protection premiums you pay where this is not paid from your superannuation.
  • Australia’s income tax system is based on self-assessment, meaning that you are accountable for the accuracy of all amounts included in your tax return, and must be able to provide evidence to support how you arrived at these numbers.

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/general/ride-sourcing-and-tax/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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