Only premiums paid to protect income from salary and wages are deductible, while payments replacing that income—whether received regularly or as a lump sum—must be included in the tax return. In the Australian Taxation Office’s income protection guidance, updated 8 June 2026, Deanne pays $250 a month for a policy containing $175 of income protection and $75 of personal injury cover: the $175 is deductible, but the $75 is not because it is capital in nature (figures checked 1 October 2026).
Which income protection premiums are deductible?
The ATO distinguishes cover based on what it protects. Being called “income protection” does not mean every part of a combined policy is deductible.
| Type of cover | Premium treatment under the ATO guidance |
|---|---|
| Income protection or continuing salary cover protecting salary and wages | Deductible |
| Cover compensating physical injury, including personal injury cover | Not deductible |
| Life insurance | Not deductible |
| Trauma insurance | Not deductible |
| Critical care insurance | Not deductible |
This distinction matters when several benefits appear under one policy. Check the premium breakdown and the policy’s product disclosure statement (PDS) rather than deducting the entire invoice automatically.
Does claiming the premium make the payment tax-free?
No. The premium deduction and the policy payment are separate questions. Although eligible income protection premiums may be deductible, a payment replacing salary or wages must still be included in the tax return.
The ATO’s myTax 2025 Other deductions instructions, published 2 June 2025 for the income year from 1 July 2024 to 30 June 2025, direct taxpayers to report an income-loss policy payment at “Salary, wages, allowances, tips, bonuses or Other income”.
How are capital benefits different?
A payment for personal injury or total and permanent disability under an income protection policy is capital in nature and might be assessable as a capital gain. That is different from a payment replacing salary and wages.
A lump sum should therefore not automatically be treated the same way simply because the policy has an income protection label. Check what the policy says the payment compensates for.
Can I claim a premium deducted from super contributions?
Under the ATO’s 2024–25 myTax instructions, a premium is not deductible where the policy was taken through a super fund and the premium was deducted from super contributions. Do not claim that amount again as a separate personal deduction.
For any other income year, check the current ATO instructions and confirm how the premium was paid.
How do I enter the deduction in myTax?
For the 2024–25 return, the ATO instructions give the following process:
- Check other deductions pre-filled from myDeductions and add any that have not pre-filled.
- To personalise the return, select Personalise return, then You had deductions you want to claim and Other deductions.
- Alternatively, under Prepare return, select Add/Edit at the Deductions banner.
- At the Other deductions banner, select Add, choose the deduction type, enter a short description and the claimable amount.
- Select Save, then Save and continue when the deductions section is complete.
These are the published steps for the 2024–25 income year. Check the ATO’s current instructions when lodging a later return.
What records should I check before claiming?
Have the relevant documents ready so the income and capital portions remain separate:
- the policy PDS;
- the premium invoice or statement showing each covered component;
- proof of whether the premium was paid personally or deducted from super contributions; and
- any statement describing an income-replacement, personal injury or total and permanent disability payment.
The ATO’s 2024–25 myTax guidance says records must generally be kept for 5 years from the date the tax return is lodged.
This is general information, not financial or legal advice. Check the current ATO page for your income year and your policy’s PDS before lodging a claim.
Sources
- Income protection insurance | Australian Taxation Office
- myTax 2025 Other deductions | Australian Taxation Office
FAQ
Can I claim the whole premium if my policy has more than one cover?
No. In the ATO example, $175 of the $250 monthly premium is deductible for income protection, while the $75 personal injury component is not deductible because it is capital in nature.
Is an income protection payment tax-free because I deducted the premium?
No. A payment replacing salary and wages must be included in the tax return, whether it is a regular policy payment or a lump sum.
Is every lump-sum payment treated as income?
No. A personal injury or total and permanent disability payment under the policy is capital and might be assessable as a capital gain.
Are life, trauma and critical care premiums deductible?
No. The ATO identifies these as examples of insurance premiums that cannot be claimed as deductions.
Can I claim a premium that was deducted through super?
Under the ATO’s 2024–25 instructions, no deduction is available where the policy was taken through super and the premium was deducted from super contributions.
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