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Is insurance tax deductible?
The following information is general in nature and has not considered your individual circumstances and is subject to change from time to time. Consult the Australian Tax Office (ATO) or your registered tax advisor to understand if these tips are applicable to you.
Ever wondered if you’re getting the most out of your tax return? Depending on your circumstances, you could reduce your taxable income by claiming business expenses. Read on to discover five expenses you could possibly claim on this year’s tax return.
Five insurance deductions that are generally claimable at tax return time
Is business insurance tax deductible?
You can generally claim a tax deduction for most operating expenses in the same income year you incur them. Ensure you keep accurate and complete records of these expenses as they occur.
Bear in mind that you can't claim the GST component of a purchase as a deduction if you can claim it as a GST credit on your business activity statement.
Is home insurance tax deductible?
If you operate some or all of your business from your home, you may be able to claim tax deductions for home-based business expenses in the following categories:
- occupancy expenses (such as mortgage interest or rent, council rates, land taxes and home insurance premiums, if you have a dedicated business space) should you pass the interest deductibility test
- running expenses (such as electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs and cleaning costs)
- the expenses of motor vehicle trips between your home and other locations, if the travel is for business purposes.
The ATO allows for occupancy expenses to be claimed if your home is your principal workplace and consists of a dedicated work area which has the character of a place of business.
What about personal superannuation contributions?
As a business owner, you can generally claim a tax deduction for:
- the salaries and wages you pay to employees.
- super contributions you make on time to a complying super fund or retirement savings account (RSA) for your employees and for certain contractors.
- personal super contributions that you made to your super fund from your after-tax income. You may also be eligible for government super contributions such as the super co-contribution or low-income super tax offset.
In addition to consulting the ATO website, you can also speak to your tax adviser for more information on each of these methods.
Is car insurance tax deductible?
As a business owner, you can claim a tax deduction for expenses for motor vehicles – cars and certain other vehicles – used in running your business.
You may be able to claim your car insurance if you use your vehicle in performing your job or in running your business. If you use the log-book method, you can generally claim the work-related percentage of your car insurance as a deduction. The cents per kilometre method incorporates all costs, so there is no separate deduction for car insurance if you use this method. Consult the ATO website or your tax adviser for more detail on each of the methods.
Is income protection tax deductible?
You can claim the cost of premiums you pay for insurance against the loss of your income.
However, you can't claim a deduction for:
- life insurance premiums
- trauma insurance premiums
- critical care insurance premiums.
If the policy provides benefits of an income and capital nature, only that part of the premium that relates to the income benefit is deductible.
You can't claim a deduction for a premium or any part of a premium:
- for a policy that compensates you for such things as physical injury.
- if the policy taken out is through your superannuation and insurance premiums are deducted from your super contributions.
Consult the ATO website or your tax adviser for more information.
What is Tax Probe Insurance?
It’s important to be well prepared for a possible audit by the ATO. When the ATO believes that there could be a discrepancy between your declared financial position and your actual financial position, you may be required to provide financial records for a certain time period or financial year. Should a discrepancy be discovered, an audit can result in the ATO leveraging fines or additional taxes against your business. Having Tax Audit or Tax Probe insurance can help you manage the associated risks and costs of such audits.
That’s why insurers like AAMI have designed the optional extra of Tax Probe Insurance on business policies. This offers cover for the professional fees associated with audits and other official investigations.
Compared to the potentially significant costs to your business that an audit may involve, the cost of Tax Probe cover is low.
Other tax tips
The Australian tax system relies on taxpayers self-assessing. This means you are responsible for working out how much you can declare and claim on your tax return. You also need to be able to show how you arrived at these figures – in some cases, you may be required to provide written evidence.
- Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.
- The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business's eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed ready for use.
- Businesses can generally claim a tax deduction for capital expenses over a period of time. A capital expense is either the expense of a depreciating asset – this includes both the amount you paid for the asset and the expenses from transporting and installing it or an expense associated with establishing, replacing, enlarging or improving your business. A depreciating asset is an asset that has a limited life expectancy (effective life) and can reasonably be expected to decline in value (depreciate) over the time it is used.
- Deductions must be directly related to earning your income. Deductions may need to be apportioned between business and private use. For example, if you buy a laptop and you only use it for your business, you can claim a deduction for the full purchase price. However, if you use the laptop 50% of the time for your business and 50% of the time for private use, you can only claim 50% of the amount as a deduction.
- Different businesses will have different record-keeping needs depending on their size, structure and nature. Your business records must contain enough information for you to be able to accurately calculate and substantiate the income, expenses and other amounts you report in your income tax return. Ensure you understand the record-keeping requirements for your business and make it a priority to keep accurate and complete records.
- You can lodge online using myTax, through a registered tax agent or complete a paper tax return. You tax return covers the income year from 1 July to 30 June. If you need to complete a tax return you must lodge it or engage with a tax agent, by 31 October. If you choose to use the services of a registered tax agent, they will generally have special lodgement schedules and can lodge returns for clients later than 31 October. If you have a registered tax or BAS agent, they can lodge, vary, and pay on your behalf through their preferred electronic channel.
- Running a business from home: what is and isn’t covered by insurance
- Running a small business from home: 3 top tips to help you get started
- 6 great things about running a small business
The information is intended to be of general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.