Yes, but with some important details:
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Inside super: Premiums for income protection (salary continuance) insurance that are held through your super fund are generally tax deductible to the super fund itself, not directly to you. The fund can claim the deduction on premiums against its taxable income, which can reduce the tax within the fund.
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Outside super: If you hold an income protection policy in your own name (outside super), the premiums are generally tax-deductible to you personally because they protect your ability to earn assessable income.
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Benefit payments:
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If you make a claim through a policy in super, the benefits are generally taxed as taxable income at your marginal rate.
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If the policy is outside super, the benefit payments are also usually taxed as income.
A summary in table form:
Question Held Inside Super Held Outside Super Who pays the premium? Paid from your super balance Paid from your personal after-tax income Are premiums tax deductible? Deductible to the super fund (reduces fund’s tax, not your personal return) Deductible to you personally in your tax return Impacts on cash flow No out-of-pocket cost now, but reduces your retirement balance Reduces your take-home pay (since you pay premiums directly) Tax on benefits if you claim Taxed at your marginal tax rate when received Taxed at your marginal tax rate when received Flexibility Cover may be limited by super fund rules; may not allow all policy options More flexibility with policy features and benefit periods Other considerations Using super to fund premiums can erode retirement savings Personal cash flow impact, but you get the deduction directly
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