Copyright (c) 2014 Kerrie Peacock
Whether you are claiming tax deductions on premiums or lodging a claim for benefit payments on your income protection insurance, the Australian Taxation Office (ATO) must always be involved. Therefore, you must always be aware of the restrictions and applicable rules when claiming deductions. You should also be aware of the requirements that necessitate involvement of the Australian Taxation Office while lodging a claim for your benefit payment.
Claiming Income Protection Insurance ATO - Tax Deductions
The Australian Taxation Office allows claims for tax deductions on premiums paid for income protection insurance. This is because the cost of premiums is perceived as a loss on your income. However, a number of restrictions apply when making such tax deduction claims:
(i) Only the portion of your premium contributing to income benefits is deductible. If there is a portion that will provide benefits of a capital nature, that part would not be tax deductible.
(ii) Similarly, insurance that includes coverage for physical injury in conjunction with income protection would also require segmentation before claiming any tax deductions. This means that the portion regarding physical injury coverage would not be eligible for any tax deductions.
(iii) In the case that income protection premiums are derived from deductions of your super contributions, then you would not be able to claim any tax deductions.
Apart from such restrictions, the Australian Taxation Office also applies certain rules in claiming tax deductions on your income protection premiums. Therefore, if you intend to successfully lodge a claim for any tax deductions, you must abide by all such rules. These include:
a) Any tax deduction claims must be made during the particular year that you actually made the premium payments.
b) You must provide substantial written evidence as proof of the premium payments you made. This means that you must carefully preserve all documentation regarding your insurance cover.
Claiming Income Protection Insurance ATO - Benefit Payment
In the process of lodging a claim for your income protection benefit payment, you must always consider the relevant tax issues. This is particularly so since all your premiums were tax deductible (you did not pay any tax on the premiums). Hence, you would be required to pay tax on the benefit payment.
To ensure that you comply with all taxation legislation, you need to provide all the necessary details in your Tax File Number Declaration, while lodging a claim for your benefit payment. Such a form provides critical details that enable proper and accurate taxation on your benefit payment.
Various aspects that may be useful in the Tax File Number Declaration (TFN) include:
- Details of name change, which will enable documenting of the appropriate details regarding the correct person.
- Residency or non-residency aspects that will affect how you get taxed on your benefit payment.
Providing accurate details in your TFN is crucial, especially because failure to meet tax obligations would lead to interest charges or even penalties. Interest charged would apply if a mistake in your tax return leads to shortfall amounts of tax being paid, unpaid debts or late tax payments. On the other hand, penalties may apply if you fail to lodge either an income tax return or an activity statement. Therefore, if you notice any error in your tax return you must contact the Australian Taxation Office as soon as possible.
Article Source: http://www.abcarticledirectory.com
Kerrie Peacock evaluates the critical aspects of compliance with tax legislation related to insurance cover. For more information and advice, log on to www.mecovered.com.au/claiming-income-protection-insurance-ato.
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