Salary Packaging Q&A ‘ Income protection and life insurance policy costs

Public, Salary Packaging
Author: Steve Griffiths
5 Oct 2017


Our organisation is planning to allow salary sacrifice for our employees in regards to their income protection insurance and life insurance policy costs. We will reimburse these policy costs and reduce their pre-tax salary accordingly. Can you please let me know if it will result in a fringe benefit tax liability or is there a specific exemption that applies?


Income protection insurance taken out by an individual is an item of expenditure that the individual can claim as an income tax deduction on the basis the premium is being paid in order to derive an amount that will be assessable income if paid to the insured individual.

As the individual can claim an income tax deduction, where an employer pays or reimburses the employee’s premium, although the payment/reimbursement is an expense payment fringe benefit, the otherwise deductible rule will apply to reduce the taxable value of the benefit to zero. As such, no FBT will be payable.

Life insurance premiums on the other hand are not deductible on the basis that a life insurance payout is not assessable income of the recipient. In this case the otherwise deductible rule is not available and FBT will apply. There is no specific exemption available that we are aware of.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.


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