Income tax is due on 7 July. These days you often don't need to do anything as the IRD will do an automatic assessment but if you do need to complete a return, best you get onto it!
There are two things to know about.
- Do I have to pay tax on a Life Insurance claim payout? and
- Do I pay tax on my premiums?
1. Payouts on Claims
Life Cover, Mortgage Cover, and Funeral Cover policiesA great thing to know about NZ is that any life insurance pay-out is tax-free as long as the owner is a person. So what you get paid out from a claim, you keep, no tax payment required. We know that if you're making a claim life is probably stressful, so it's good to know tax is one thing you won't need to worry about.
The 'rule' behind this is that any income related to loss of life, or illness, is exempt from tax. This means payments related to Life Cover, Mortgage Cover, and Funeral Cover policies, as well as any Trauma benefits are tax-free. The only time this isn't the case is when the owner of the policy isn't a person but is a trust or company.
If the owner of a policy is a trust or company, then the tax rules get more complicated. It's best to talk to your tax adviser if that's the case.
What about Income Protection?
Income Protection is a little different. It's considered a 'taxable earning'. That means you'll need to pay tax even though your benefit payments are related to a loss of income.
2. Are premiums taxed?
GST on Life Cover, Mortgage Cover, and Funeral Cover premiums
There is no GST on life insurance, mortgage or funeral insurance premiums. So when you're paying your premiums, there's no GST added in.
GST on Trauma Cover and Income protection premiums
There is, however, GST on Trauma cover and Income Protection. So if you're GST registered, you can claim that back.
Finally, we're not tax experts
So while you shouldn't take this information as tax advice, hopefully, it will help you work out what questions you may want to ask your tax advisor or give you some peace of mind.
