Is Income Protection Tax Deductible in Australia?

In most cases, yes. If you pay the premiums for an income protection policy yourself, and the policy replaces your salary or wages, the ATO allows a deduction for those premiums. The catches are who pays the premium (you or your super fund), what the policy covers (income only, or extras as well), and the fact that any benefit you later receive is taxable. This guide walks through each one, with examples, so you know what to claim and what to ask your insurer for.

TL;DR

• Premiums for cover that replaces your salary or wages are generally deductible when you pay them personally, outside super.
• If the premium is paid from your super balance, you can’t claim it on your own tax return.
• Parts of a bundled policy, such as trauma or lump-sum cover, aren’t deductible. Ask your insurer for a breakdown.
• Benefits paid to you under the policy are assessable income and must be declared.
• Claim at D15 (other deductions) in your individual tax return, and keep the insurer’s annual statement.

Table of Contents

• What the ATO says you can claim
• Where to claim it in your tax return
• Policies held inside super
• Bundled policies: the part that isn’t deductible
• Benefits you receive are taxable
• Who benefits most from claiming
• Our perspective
• How to check your own situation
• Reviewing your cover with us
• Related tax questions we hear
• FAQ
• Sources

What the ATO says you can claim

The ATO’s position is simple: only the premiums you pay to protect your income, meaning salary and wages, are deductible. The ATO’s page on income protection insurance deductions was last updated on 8 June 2026, and it is the page to check first if your situation is unusual.

The logic is the same as for other deductions. The cost is deductible because the benefit that replaces your income is taxed as income when you receive it. Deduction and taxable benefit go together.

In practice, a premium is generally deductible when:

• you own the policy and pay the premium from your own money, outside super;
• the policy pays you an income benefit if you can’t work because of illness or injury; and
• the cover is for your employment income, not for another purpose.

The ATO has also published a legal database answer confirming that premiums paid to an Australian insurer for income benefits when you are totally unable to work due to injury or sickness are deductible.

What income protection actually pays

It helps to know what you are insuring. According to Moneysmart, income protection usually replaces a percentage of your pre-tax income, for example 75% or 90%, if illness or injury stops you working. The benefit is based on your earnings in the 12 months before you became unable to work. Because the benefit stands in for taxable income, it is treated as taxable income too.

Where to claim it in your tax return

You claim the premiums at D15, “other deductions not claimable elsewhere”, in your individual tax return. The ATO explains the question in its D15 instructions. If you use myTax, income protection, sickness and accident insurance premiums appear in the “other deductions” section.

A simple routine:

1. Ask your insurer for the annual premium statement after 30 June.
2. Check that the amount relates only to the income-replacement cover (see the next section).
3. Enter the deductible amount at D15 and keep the statement for your records.
4. If you also received benefit payments, declare those as income in the same return.

The ATO is not guessing here. It has expanded its data matching so it will know premiums paid for income protection policies as well as payouts received. Claim what the policy supports and no more.

Policies held inside super

This is the case that catches people out. Many Australians hold income protection through their super fund, either a default arrangement or a policy they chose. When the fund pays the premium from your super balance, you haven’t paid it from your own assessable income, so you can’t claim it personally. The deduction, where available, is generally dealt with inside the fund. Moneysmart-style guidance and adviser commentary make the same point: convenient, but not a personal deduction.

That doesn’t make super cover a bad idea. It has real advantages:

• Premiums come out of super rather than your take-home pay, which helps cash flow.
• It can be cheaper to get started, particularly if you are younger or on a tight budget.

It also has trade-offs worth weighing:

• Premiums reduce your retirement balance over time.
• Default cover through a fund can have narrower definitions or lower benefit limits than a standalone policy. The terms vary by fund, so read the product disclosure statement.
• Different rules apply to cover held through super when you need to claim. The Australian Financial Complaints Authority publishes a plain-language explainer on how income protection benefits in super work.

The death benefit side of super also matters if you are reviewing cover. If you hold any insurance in your fund, the payout on death is a super death benefit, and it doesn’t automatically follow your will. This guide to super death benefits and your will explains how that works and why your nominations matter.

We cover the related question for life cover in keep, top up or move life cover from super, and for disability cover in TPD insurance in super.

Bundled policies: the part that isn’t deductible

Some policies bundle income protection with other benefits. Trauma (critical illness) cover and lump-sum disability benefits are the usual ones. Those pay a capital sum, not a replacement of income, so the premium attributable to them isn’t deductible. The ATO says only the premiums that protect your salary and wages are deductible, so a mixed premium has to be split.

Here is a simple illustration, with made-up numbers:

You would claim $1,400 at D15, not $2,000. If your statement shows a single combined figure, ask the insurer for a breakdown before you lodge. Insurers regularly provide this, and it removes the guesswork.

The same principle applies to life insurance and standalone TPD or trauma policies held personally: those premiums are generally not deductible for an individual. Income protection is the exception, which is why it gets its own search.

Benefits you receive are taxable

The deduction is half the picture. If you claim on the policy, the ATO tells you to declare income protection payments in your tax return. Insurers commonly withhold tax from the payments and give you a payment summary, but check the paperwork at lodgement time.

Two practical consequences:

• Plan on an after-tax benefit. A 75% benefit is 75% of pre-tax income, then taxed. Your take-home during a claim will be lower than that figure suggests, so test whether it covers your mortgage, school fees and living costs.
• The tax deduction lowers the real cost of the policy. If your marginal rate is 37%, a $1,400 deductible premium costs roughly $882 after the deduction, before the Medicare levy. The higher your rate, the more the deduction is worth. That calculation is arithmetic on your own rate, so confirm your own numbers with your tax agent.

Who benefits most from claiming

The deduction matters most for people on higher marginal tax rates and for people who work for themselves.

Employees and professionals. Medical and dental professionals, executives and other high earners often carry larger policies, so the deduction is worth more. For salaried employees, check what your employer or fund already provides before you buy more.

Business owners and the self-employed. Your income is your business’s engine, and there’s often no sick leave to fall back on. A personally owned policy with premiums paid from your own after-tax money is generally the straightforward route to a deduction. If the business, rather than you, pays for cover on key staff or on yourself, different tax treatment can apply. Our article on key person insurance for SMEs covers the traps.

Pre-retirees. Income protection usually ends at a set age. For many policies it is 65, though terms differ. If you are within a decade of retirement, the question is often whether the premiums still make sense against your remaining working years and your other assets. That is a planning decision, not just a tax one.

Our perspective

We see the same pattern with new clients. They’ve held income protection for years, often inside super, and have never checked whether the premiums are deductible, whether the definition of disability still suits their job, or how the benefit would be taxed. The deduction is a nice feature. It shouldn’t be the reason you buy, keep or cancel a policy.

Our view is that the order of questions should be:

1. Would the benefit, after tax, cover your essential costs if you couldn’t work for a year or more?
2. Is the policy’s definition of disability a fair match for what you actually do?
3. Can you afford the premium comfortably for as long as you need it, and does the structure (inside super or personal) fit your cash flow and retirement goals?
4. Only then: what is the tax treatment, and how do we claim it properly?

For people closer to retirement, we look at insurance alongside the rest of the plan: super balance, income needs, the Age Pension and estate wishes. Paying premiums out of super reduces the balance you will draw on later, and that trade-off is worth making deliberately, not by default. Every recommendation we make is based on the client’s actual position, not a template.

— Adam

How to check your own situation

Before you lodge, run through these points:

• Who paid the premium? Your bank account or your super fund?
• What is covered? Check the policy schedule for trauma, TPD or life cover bundled in.
• Do you have the statement? Get the annual premium summary from the insurer.
• Was any part reimbursed? If your employer reimbursed premiums, tell your tax agent, as that affects what you can claim.
• Did you receive payments? Declare them as income.

If you have a mix of policies, some inside super and some held personally, a short review often shows where cover overlaps and where it falls short. Saving a few hundred dollars in tax is a poor trade if the policy would leave a gap when you need it.

Reviewing your cover with us

If you’d like a second opinion on your income protection, we review existing personal insurance, including cover held through super, and help you work out whether it suits your income, your family and your retirement timeline. You can read about our personal insurance advice or see how we approach insurance through super. If you are within 10 years of retirement, our retirement planning service looks at insurance as one part of the whole picture.

Related tax questions we hear

Income protection is one of several tax questions around super and insurance. If you are weighing up where your money should go, these may help:

• Making a personal contribution and claiming it back is a separate deduction. See our complete guide to personal deductible contributions.
• How super is taxed once you reach 60 is covered in our guide to tax on super in retirement.
• If you are weighing up the cost of getting advice, see what financial adviser fees actually cost in Australia.

FAQ

Where do I claim income protection on my tax return?

Claim the deductible portion of your premiums at D15, other deductions not claimable elsewhere. In myTax it sits under other deductions. Keep the insurer’s annual statement in case the ATO asks to see it.

Can I claim income protection if it’s paid from my super?

Not personally. If your fund pays the premium from your super balance, it isn’t paid from your own assessable income, so you can’t claim it at D15. Check with your fund or a tax professional about how any deduction is treated inside the fund.

Which insurances are tax deductible?

For individuals, the main one is income protection that replaces salary or wages. Premiums for personally held life, TPD and trauma cover generally aren’t deductible. Business insurance can be treated differently, so ask your accountant if the business is paying.

Do I pay tax on income protection payouts?

Yes. Payments you receive under an income protection policy are assessable income and must be declared in your tax return. Insurers often withhold tax, but you should check your payment summary.

What if my policy bundles trauma or lump-sum cover?

Only the income-replacement portion is deductible. Ask your insurer for a breakdown of the premium and claim that figure only.

This article is general information, not personal tax or financial advice. For your own return, speak with a registered tax agent or a licensed financial adviser.

Sources

• ATO: Income protection insurance deductions
• ATO legal database: deduction for income protection premiums
• ATO: D15 other deductions 2026
• ATO: Income protection insurance payments
• ATO: data matching expansion
• Moneysmart: Income protection insurance
• AFCA: Income protection benefits in superannuation

Recommended

• Avoid ATO Tax Traps: Key Person Insurance for Australian SMEs
• Australians: Could You Need $705,000–$920,000 of Life Insurance?
• Australians: keep, top up or move life cover from super

This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here. General Advice Warning Disclaimer: The information on this website is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs & financial situation.