News and insights

ATO to commence data-matching: income protection policies

Article published on: 14-06-2023

Certain insurers will be required to report information to the ATO for income protection (IP) policies held from 1 July 2021 to 30 June 2026. The purpose is to:

ensure the correct information is being reported by individuals and businesses in relation to reporting and other administrative tasks, and
help identify circumstances where obligations may not be met, so that education and assistance can be provided.

This includes trying to mitigate incorrect lodgement of tax returns and declaration of taxable income from these policies and ensuring deductible premiums are correctly claimed. The ATO noted that sample data that was acquired in 2021 and later compared against tax returns has revealed:

that most taxpayers incorrectly reported the relevant income (claims), and
the amount of the premium claimed as a deduction in their tax return was incorrect.

Some of the data to be accessed includes details about the:

policy owner and insured person (including name, address, date of birth and banking details), and
policy itself (including start and end dates, premiums and payouts).

Advice opportunities

Particularly in the lead up to tax time, it may be useful to get in touch with clients who have:

an IP policy where they (or their business) are eligible to claim a deduction for premiums, or
have received IP payments during the year.

As some IP policies provide additional benefits to clients beyond income replacement, the full amount of the premium may not be fully tax deductible. Most insurers provide a tax statement to provide the breakdown of the premiums and the portion that relates to the replacement of income. Client should ensure they have this statement and, if not, should contact their insurer.

More information

More information about the data-matching program can be found at ato.gov.au.

This communication is prepared by Actuate Alliance Services Pty (ABN 40 083 233 925, AFSL 240959), a related entity of MLC Wealth Limited (ABN 97 071 514 264). This is for financial adviser use only – it is not to be distributed to clients. The communication has been prepared to provide financial advisers with technical resources, support and knowledge. The information in this document is current as at the date of publication and reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue, and may subject to change. In some cases, the information has been provided to us by third parties. Whilst care has been taken in preparing this document, no liability is accepted for any errors or omissions in this document, and loss or liability arising from any reliance on this document. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we therefore recommend your client consult with a registered tax agent.