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Income tax: is a premium payable on a trauma insurance policy by a self employed person or an employee an allowable deduction to the self employed person or employee?

No. The premium payable under a trauma insurance policy is not an allowable deduction to an employee or self employed person.

The purpose of trauma insurance is to provide a capital amount to the insured if the insured suffers a specified medical condition. The policy does not replace earnings lost by the taxpayer.

The benefits payable under this type of policy do not constitute assessable income under section 6-5 of the Income Tax Assessment Act 1997 ('the 1997 Act') (formerly section 25(1) of the 1936 Act). In these circumstances, a deduction is not allowable under section 8-1 of the 1997 Act (formerly section 51(1) of the 1936 Act) as there is no connection between the payment of premiums and the production of assessable income (see FC of T v. D P Smith 81 ATC 4114; (1981) 11 ATR 538). Note: The Addendum to this Determination that issued on 18 August 1999 applies in relation to the 1997-98 or a later income year.

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