Insurance for sole traders: which premiums you can deduct and which you cannot

Public liability

Public liability covers claims from a third party who is injured or whose property is damaged by your work. It is a standard business cost and a premium for a policy that covers only the business is deductible in full. Many tradies, cleaners and market sellers are required by clients or venues to hold it.

Professional indemnity

Professional indemnity covers claims that your advice or service caused a client a loss. Consultants, designers, IT contractors and many health practitioners hold it. The premium is deductible when the cover relates to your business. Some professions must carry a minimum level of cover to maintain registration, and that requirement does not change the tax treatment.

Equipment, stock and vehicle cover

A policy covering business tools, stock or premises is deductible, since it protects an asset used to earn income. If an item is used partly for private purposes, such as a laptop or a ute, only the business share of the premium is deductible. See private use and business percentage. Comprehensive car insurance is part of vehicle costs under the logbook method but is covered by the cents per kilometre rate if you use that, so you cannot claim both. See motor vehicle deductions.

Income protection

Income protection replaces part of your earnings if you cannot work. Premiums paid outside super are generally deductible against your income, even though the policy covers you personally. The trade-off is that benefits you receive are assessable income. Premiums paid from within a super fund are handled in the fund. Because policies vary, confirm the structure with your adviser.

What is not deductible

Private health insurance, life insurance, total and permanent disability and trauma cover are private expenses for a sole trader. Some are paid through super and appear on a fund statement rather than your bank account. Travel insurance is deductible only for a genuine business trip, and the private portion of a mixed trip is not. See travel and accommodation deductions.

Workers compensation is a business cost where you have employees. A sole trader usually cannot insure themselves under a standard workers compensation scheme, and personal accident cover is a separate product.

GST on insurance premiums

Most general insurance premiums include GST, which a registered business can claim as a credit if the policy is for the business and you hold a valid tax invoice. Life and some other types of cover are input-taxed or GST-free, so there is no credit to claim. Stamp duty on a premium is not subject to GST and not creditable, so the amount of GST on a premium is not always one eleventh of the total. See which expenses have no GST.

Paying monthly or annually

Insurers often charge extra for monthly instalments. The deduction follows when you pay, so a monthly policy is spread across the year, while an annual payment may be claimable all at once under the 12-month rule. See prepaid expenses and the 12-month rule.

How FlowFi helps

FlowFi identifies insurance payments on your bank statement, separates business policies from personal ones where it can, and works out the GST where a credit applies. A bundled policy that mixes private and business cover needs your judgement, and your accountant’s, to apportion.