ASIC financial adviser exam, Investment, debt and insurance advice strategies question: tax deduction for the premiums

ASIC examInvestment, debt and insurance advice strategies

For insurance an individual holds personally outside super, the ATO generally allows a tax deduction for the premiums on… (i) income protection cover. (ii) life cover.

A (i) True, (ii) True
B (i) True, (ii) False
C (i) False, (ii) True
D (i) False, (ii) False

Show the answer and explanation

Answer: B. (i) True, (ii) False

Statement (i) is true: the ATO allows a deduction for income protection premiums paid personally outside super, because the benefits replace assessable income (ATO, Income protection insurance). Statement (ii) is false: premiums for life cover held personally are not deductible, and the same applies to trauma and TPD cover, because the benefits are capital in nature.

Common mistake

Deductibility follows whether the benefit replaces income.

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