Yes. Personally paid Income Protection premiums are generally deductible under ITAA 1997 s8-1. Benefits are assessable as income. The deductibility test rests on the premium being incurred to produce assessable income (the IP benefit itself).
The rule is general advice. Your specific tax position depends on how the cover is owned, how you pay premiums, and any structuring through a business or super. Always confirm with your accountant or refer to the ATO directly.
The ATO position
The Australian Taxation Office sets out the deductibility position in:
- ATO Taxation Ruling TR 95/35 (Income tax: deductibility of income protection insurance premiums)
- ATO Taxation Ruling TR 85/36 (Income tax: receipts of insurance proceeds)
- ITAA 1997 s8-1 (General deductions)
- ATO website page Insurance premiums - income protection
The core principle: premiums for an insurance policy that produces assessable income (a taxable monthly benefit) are deductible because they are an expense incurred to produce that assessable income. Benefits, being assessable income, are taxed at the claimant's marginal rate in the year received.
Owning IP personally (outside super)
- Premiums paid from after-tax income are generally deductible to the individual.
- Benefits paid to the individual are assessable income and taxed at marginal rates.
- This is the standard structure for retail IP on the panel.
- The deduction reduces the effective after-tax premium cost. Worked example: a $2,500 annual premium for a person in the 37% marginal bracket has an effective after-tax cost of about $1,575.
- Lodge the deduction in your tax return under the 'Income protection insurance' label.
Owning IP inside super
- Premiums are funded from the super balance, often using pre-tax employer or salary-sacrifice contributions.
- Personal premium deduction is not available (you have not paid out of pocket).
- The super-fund trustee may claim the deduction inside the fund.
- Benefits paid to your super account may be taxable when accessed, depending on age and component (taxable versus tax-free).
- This structure suits clients constrained on cash flow but adds tax complexity at claim time.
What is excluded from the deduction
- The portion of a combined premium attributable to Life or TPD cover (lump-sum risk is not deductible to the individual).
- The portion attributable to Trauma cover (also non-deductible).
- Riders that provide non-income benefits (some specified-injury or critical-event lump sums).
Most panel insurers issue annual premium-paid statements separating the IP component from any combined cover. Use that statement at tax-return time. The statement is the substantiation document if the ATO asks.
Where the panel PDSs sit on tax
No panel PDS makes tax representations. Each refers you to the ATO. TAL Accelerated Protection PDS (12 December 2024) says please visit www.ato.gov.au for more information. AIA Priority Protection PDS (Version 32, 9 November 2025), Zurich Wealth Protection PDS (1 November 2025), and others follow the same disclaimer pattern: the tax position is your responsibility to confirm with a registered tax agent.
What changes the answer
- Self-employed or business-owned IP: deductibility flows through the business entity. Different rules apply to companies, trusts, sole traders, and partnerships.
- Combined-cover policies: only the IP portion deducts. The insurer's premium statement separates the components.
- Salary continuance through group super: trustee claims the deduction, not you.
- Benefits later assessed as compensation: rare, but if a benefit is paid as a lump-sum compromise on commutation, the tax treatment may differ from monthly benefit treatment.
Practical takeaways
- Get the insurer's annual premium statement separating IP from any other cover.
- Lodge the IP-only premium amount as a tax deduction.
- If you start a claim, expect monthly benefit payments to be PAYG-withheld at source or to require quarterly tax payments via your tax agent.
- Speak to your accountant or check the ATO website if your cover is structured through a business, super, or trust.