Are insurance premiums for business assets, liability, and income protection deductible for tax purposes in New Zealand?

In New Zealand, the deductibility of insurance premiums depends on the nature of the insurance policy and what risk it covers. Premiums are generally deductible if they are incurred wholly, exclusively, and necessarily in the course of deriving business income.

### 1. Business Asset Insurance (e.g., Plant, Machinery, Buildings)

Premiums paid to insure business assets (such as vehicles, office equipment, or trading stock) against damage, loss, or theft are fully deductible. This is because the insurance protects the income-earning capacity of the business. If a claim is paid out, the resulting insurance proceeds are treated as assessable income, which offsets the deduction claimed in previous years.

### 2. Business Liability Insurance

Premiums for policies covering business liabilities, such as Professional Indemnity Insurance or Public Liability Insurance, are fully deductible. These policies protect the business from financial loss arising from claims made by third parties, which is a necessary cost of operating the business.

### 3. Income Protection Insurance

This is where the distinction between business and personal risk management becomes critical:

• For Sole Traders/Partners: Premiums paid for Income Protection Insurance (which replaces lost business income if the owner is sick or injured) are generally deductible as they protect the flow of assessable income. This is distinct from standard personal income insurance.
• For Employees: Premiums paid for personal income protection insurance are not deductible as they relate to personal income, not business income.

### 4. Key Person Insurance

If the business takes out a 'Key Person' policy on a director or owner (where the business is the beneficiary to recoup losses if that person dies or becomes incapacitated), the premium is generally deductible.

Conversely, if a director or owner takes out a 'Key Person' policy where they are the beneficiary, the premium is not deductible.

### General Rule for Deductibility

To claim a deduction, the expense must meet the core test: it must be incurred in earning assessable income. If the insurance covers a private risk (like insuring a family car or personal life insurance), the premium is not deductible.