ATO Interpretative Decision
ATO ID 2001/405 (Withdrawn)
Income Tax
Deductibility of income protection policy premiumsFOI status: may be released
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This ATO ID is withdrawn as the interpretative issue is covered in Class Ruling CR 2002/57 at paragraphs 22-31.This document has changed over time. View its history.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer, an employee, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenditure incurred on an income protection policy?
Decision
Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for expenditure incurred on an income protection policy that provides for an indemnity against loss arising from the inability to earn income.
Facts
The taxpayer, a salaried professional, contributes to an income protection policy. The policy provides the taxpayer with an indemnity against loss arising from an inability to earn income.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.
The High Court considered the deductibility of a personal disability insurance premium in FC of T v. Smith 81 ATC 4114; 11 ATR 538. In that case a medical practitioner employed by a hospital was allowed a deduction for premiums paid to secure a monthly indemnity against the income loss arising from the inability to earn. It was held that the premium under the policy was deductible even though the purpose of the expenditure was not the gaining of the income in that year. There was sufficient connection between the purchase of the cover against the loss of ability to earn and the consequent earning of assessable income and the outgoing was not of a capital, private or domestic nature. The deduction in that case was allowed under subsection 51(1) of the Income Tax Assessment Act 1936 (now replaced by section 8-1 of the ITAA 1997).
The taxpayer is therefore entitled to a deduction under section 8-1 of the ITAA 1997 for premiums paid under an income protection policy that provides for an indemnity against loss arising from an inability to earn income. However, if the policy provides for benefits of an income and capital nature, only that part of the premium attributable to the income benefit is deductible.
Date of decision: 15 August 2001
Legislative References:
Income Tax Assessment Act 1936
subsection 51(1)
section 8-1
Case References:
FC of T v. Smith
81 ATC 4114
11 ATR 538
Keywords
Work related expenses
ISSN: 1445-2782
| Date: | Version: | |
| 15 August 2001 | Original statement | |
| You are here | 1 April 2010 | Archived |