When an employee goes to the bank to get finance (whether for their private residence, investment property, or motor vehicle), the bank often makes it compulsory that they take on the bank’s income protection insurance policy as well.
The cost of the insurance premiums for the income protection insurance is tax deductible. The monthly income protection insurance payments received under the insurance policy replace the employee’s salary income and are taxable.
Exactly like an employee’s normal salary income, PAYG tax is deducted by the insurance company from the gross insurance payments. At year end the employee receives a payment summary from the insurance company showing their gross income for the year and PAYG tax deducted.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.