Deductibility of Premiums

21.134. The granting of some form of tax concession in respect of premiums paid on life insurance policies is of long standing, both in Australia and overseas, going back in the case of the United Kingdom to 1799.

21.135. In Australia the position is now governed by section 82H of the Act the predecessors of which date back to the first levying of income tax by the Australian Government in 1915. The concession granted in respect of life insurance premiums has at various times taken the form of a deduction from income or a rebate of tax and, since 1936, amounts paid as premiums have been aggregated with superannuation contributions for the purpose of determining the maximum amount in respect of which the concession is granted. Since 1951 the concession has been by way of a deduction the maximum amount of which has, since 1968, been $1,200 per annum.

21.136. Section 82H as it now stands provides in subsection (1) (a) that:

‘(1) Amounts paid by the taxpayer in the year of income…as—

(a) premiums or sums—

(i) for insurance on the life of, or against sickness of, or against personal injury or accident to, the taxpayer or his spouse or child; or

(ii) for a deferred annuity or other like provision for his spouse or child …

shall be allowable deductions.’

Subsection (1) (b) allows as a deduction payments to superannuation funds and friendly societies, while subsection (2) provides that the total deduction allowable under this section is not to exceed $1,200.

21.137. Section 82H was amended in 1973 by the insertion of new subsections (1A)-(1H). These were directed to curtailing abuses that had developed in relation to policies of a very short term or policies surrendered shortly after being effected. The amendments result in the deduction of premium payments being disallowed if the policy is for a term of less than ten years and in the retrospective disallowance (by the reopening of past assessments) of all or a part of the deduction of premiums paid on a policy taken out for a term greater than ten years if discontinued within ten years of its commencement for any reason other than serious financial difficulty. These provisions apply only to policies the first premium on which was paid on or after 1 January 1973.

21.138. Deductions for premium payments may also be available under section 51 (1) in certain circumstances where an employer effects a policy on the life of an employee. Such cases are relatively few in number and will not be further considered.

21.139. The total amount of deductions claimed under section 82H for life insurance premiums is extremely large, as is the number of taxpayers claiming a deduction. Statistics published by the Life Insurance Commissioner indicate that as at 31 December 1973 approximately $696 million per annum was being paid in premiums on life insurance policies (excluding superannuation policies) and most of this amount would have qualified for deduction under section 82H. No estimate is available of the precise number of taxpayers claiming a deduction for life insurance

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premiums, but at 31 December 1973 there were nearly 8 million individual life insurance policies in force in Australia.