Private ruling: Loss of licence insurance
Published: May 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for 30% of the expense incurred to pay for a loss of pilot licence insurance policy? | A1: No.

Relevant facts and circumstances: You are a professional pilot for a major airline. You currently pay for a loss of licence insurance policy to cover your pilots licence You are the policyholder. As part of your contract with the airline, you are reimbursed for the cost of loss of licence insurance to a percentage per annum of your base salary. You are reimbursed by the airline for approximately 70% of this expense, but you cover the remaining 30%.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing assessable income except where it is of a capital, private or domestic nature. In Case R100 84 ATC 658 ( Case R100 ), an international airline pilot claimed a deduction for the cost of premiums paid for cover under a loss of licence insurance policy. The policy provided three different entitlements: monthly payments if the taxpayer was unable to carry out his normal duties because of sickness and his sick leave had expired, a lump sum payment on death and a lump sum payment on permanent or deemed permanent loss of licence. As the lump sum payments under the policy would be capital payments and only the monthly payments would be income, it was only the amount of the premiums which was attributable to the potential income payments that was deductible. Accordingly 10% of the premiums were allowable as a deduction. In Income Tax Ruling IT 2230 (IT 2230), the Commissioner stated that he accepts the decision in Case R100. The outcome will apply to comparable fact situations where taxpayers have paid premiums for loss of licence insurance policies which provide for the payment of periodic benefits of an income nature, as well as benefits of a capital nature. While the amount to be allowed in any case will need to be determined having regard to the particular terms and conditions of the policy in question, the Commissioner accepts that in cases like Case R100 , where the policy is essentially geared towards the payment of a capital sum for the loss of the contributor's capital asset (the licence to fly), a deduction of 10% of the premium will be allowed. In situations where a greater deduction is sought, the taxpayer will need to provide additional information such as an actuarial certificate from the insurer outlining the basis on which the calculation has been made. In your case, you hold a loss of licence insurance policy for your pilot licence. The benefits paid under the policy include lump sum payments for permanent disablement, monthly payments for temporary disablement and death benefits. The facts of your situation are comparable to Case R100 as your insurance policy provides for the payment of periodic benefits of an income nature as well as benefits of a capital nature. Notwithstanding the portion not reimbursed by your employer, you have not provided information to distinguish your situation from that examined within Case R100 and support the basis of a deduction for 30% of the expenditure incurred for the insurance policy. Therefore, in accordance with IT 2230, you are only entitled to a deduction for 10% of the expenditure incurred for the loss of licence insurance policy.

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