Are business insurance premiums tax deductible?

An old school tax and business calculator

Businesses, sole traders and contractors can claim tax deductions from a wide range of business-related expenses including some insurance premiums.

Although there are many types of business insurance policies that are tax deductible, the criteria for you to be able to claim tax deductions requires that your policy cover be essential to earning an assessable income.

Disclaimer: Insurance brokers are not tax experts. Please consult with your accountant for tax advice.

Businesses, sole traders and contractors can claim tax deductions from a wide range of business-related expenses including some insurance premiums.

Although there are many types of business insurance policies that are tax deductible, the criteria for you to be able to claim tax deductions requires that your policy cover be essential to earning an assessable income.

These include, amongst others, income protection insurance, public liability insurance, building and commercial motor vehicle insurance and loss of profits insurance.

Income protection Insurance

Your income protection insurance premiums are tax deductible provided a benefit payout that you claim on your policy is regarded as a taxable income. If it is not, then you are unable to have your income protection premiums deducted as part of your personal or business income tax.

For example, if your policy cover has a pre-agreed value and you are unable to work for any reason, then your claim does not relate to a loss of income but rather to cover your inability to work and is therefore not tax deductible.

Seeking advice from an accountant is recommended if you are unsure about whether your policy can be claimed as an expense.

They can provide expert advice on what business insurance premiums are tax deductible and assist you with summarising the total annual amount you have paid on your premiums and what portion of that amount is tax deductible.

Key person insurance

Some businesses that have key staff members who provide a unique set of skills critical to the success of the business will choose to take out key person insurance.

This is to protect the employer against the risk of that employee suffering a disability or an illness/accident that results in death placing the business under financial strain or impacting profitability. This can be on either a temporary or permanent basis.

As the policy is taken out to obtain cover for the purpose of providing revenue replacement, your premiums may be tax deductible.

However, if your policy premiums are for the purpose of covering capital losses due to the loss of a key staff member, then you won’t be able to claim a tax deduction.

Commercial motor vehicle insurance

Standard consumer motor vehicle insurance policies often do not cover the use of your vehicle for business purposes, which means you are unable to claim your vehicle insurance premiums as a business-related expense.

However, if your vehicle is driven for business purposes then you should consider having your standard vehicle policy changed or extended to include business use.

This will ensure that you are covered in the event that you need to make a claim on your policy whilst driving your vehicle for work. It also means that you may be able to claim your vehicle insurance premiums as a tax-deductible business expense.

The full running costs of a vehicle that is used solely for business purposes can be claimed as a business expense and is therefore tax deductible. This includes your commercial motor vehicle insurance premiums, the cost of maintaining your vehicle and fuel purchases.

Seek advice from an accountant

For many small businesses, it can be a challenge knowing what insurance premiums they can deduct from their annual income tax return.

An accountant will be able to explain what the tax deduction criteria are for the different policies you may choose to take out to minimise risk.

These include insurance cover to protect against damage to your business premises, loss of income through disability or death, the loss of a key staff member, loss of stock or other business assets and protection against your business being sued.

Extra benefits of using an Insurance Broker

Your Insurance Broker will be able to work with your accountant (and any other professional service providers you use) on your behalf. Through direct contact with your accountant, your broker can help structure your insurances in the best way possible. This is one of the additional benefits of having a broker, and another way they can help support your business needs.

To arrange the best insurance for your business, contact your local broker today.