One injured employee, a client who says your advice cost them money, or a stolen laptop full of customer data can sink a new business before it reaches its first anniversary. Insurance will not stop those things happening, but it decides whether they are a bad month or the end of the business.
This guide covers the insurance types the Australian Government lists for small businesses, which cover is compulsory, how workers compensation works in each state and territory, and how the ATO treats premiums for income tax and GST in the 2025-26 and 2026-27 income years. Rules were checked against business.gov.au, the Fair Work Ombudsman and ATO guidance.
It is written for founders, sole traders and new company directors who want to know what they must have, what is worth considering and how to keep the paperwork right. If you are still choosing a structure, read our guide to moving from sole trader to company as well, because the structure affects who the policy should insure.
Key takeaways
- Workers compensation is compulsory once you employ staff, and it is run by each state and territory, not the federal government.
- Third party personal injury cover applies to business vehicles and is often part of registration.
- Some occupations must hold public liability or professional indemnity cover before they can legally operate.
- Business insurance premiums are generally deductible as operating expenses; claim the business share only.
- GST-registered businesses claim the GST credit on premiums and should tell the insurer their credit entitlement before making a claim.
- Small businesses with aggregated turnover under $10 million can usually deduct a 12-month prepaid premium straight away.
Startup insurance at a glance
| Cover | Compulsory? | Tax treatment |
|---|---|---|
| Workers compensation | Yes, if you employ workers | Deductible business expense |
| Third party personal injury (vehicles) | Yes, for vehicles used in the business | Deductible business expense (business share) |
| Public liability | Required for certain occupations in some states; often required by leases and contracts | Deductible business expense |
| Professional indemnity | Mandatory for some professions | Deductible business expense |
| Building, contents, equipment, cyber, business interruption | No | Deductible business expense |
| Income protection (owner) | No | Generally deductible in your personal return |
| Life, trauma, critical care (owner) | No | Not deductible |
Source: business.gov.au types of business insurance, ATO deductions for operating expenses, ATO income protection insurance, checked 9 October 2026.
What insurance is compulsory for an Australian startup?
The business.gov.au insurance guide names three types of insurance that businesses most commonly need by law: workers compensation, public liability (for certain occupations in some states and territories) and third party personal injury cover for business vehicles. It also notes that some businesses must hold liability insurance before they can legally operate, and that professional indemnity insurance is mandatory for some professions.
There is no single national list. What you must hold depends on whether you employ people, what vehicles you use, what licence your trade or profession needs and where you operate.
Third party personal injury cover for vehicles
If the business uses a motor vehicle, third party personal injury cover (often called compulsory third party or CTP) covers people injured in an accident involving that vehicle. In most cases it is paid with registration. The GST treatment of these state schemes is set out in an ATO explanatory memorandum on GST and compulsory third party schemes, which matters to insurers more than to the businesses buying the cover.
Liability cover required by a licence, lease or contract
Even where the law does not require public liability, a commercial landlord or a large client often will. Read the lease and the client contract before you sign, note the minimum cover they ask for, and make sure the policy names the right entity. A policy in your personal name will not help if the contract is with your company.
How does workers compensation work in each state?
Workers compensation is governed by the states and territories. business.gov.au says employers must get workers compensation insurance from an authorised insurer. The Fair Work Ombudsman states on its workers compensation page that this is not an area it can help with and directs you to your state or territory regulator.
| State or territory | Who to contact |
|---|---|
| Victoria | WorkSafe Victoria |
| New South Wales | State Insurance Regulatory Authority (SIRA) |
| Queensland | WorkSafe Queensland (Office of Industrial Relations); policies are issued by WorkCover Queensland |
| Western Australia | WorkCover WA |
| South Australia | ReturnToWorkSA |
| Tasmania | WorkSafe Tasmania |
| Australian Capital Territory | WorkSafe ACT |
| Northern Territory | NT WorkSafe |
Each scheme has its own rules on who counts as a worker, how premiums are calculated and when you must register. Some contractors can be treated as workers for workers compensation purposes even when they have an ABN, so check with the regulator before you assume a contractor is outside the scheme.
Sole traders are not covered by workers compensation. business.gov.au suggests accident and sickness insurance as optional cover for sole traders.
Which other covers should a startup consider?
business.gov.au groups the remaining covers by what they protect. Which ones you need depends on your risks, not on what a competitor holds.
- Liability: public liability, product liability (if you make, sell or supply goods), professional indemnity and management liability for directors and officers.
- Assets and stock: building and contents, burglary, machinery breakdown, goods in transit and deterioration of stock.
- Technology: electronic equipment at a fixed location, portable equipment taken to jobs, and cyber cover for data breaches, cyber extortion and related interruption.
- Income and continuity: business interruption cover for ongoing costs after an insured event, and employee dishonesty cover for theft or fraud.
- The owner: income protection, life, total and permanent disability and trauma insurance.
Directors of a company may want management liability cover to protect their personal assets. It sits alongside, not instead of, a sound asset protection structure.
Are business insurance premiums tax deductible?
The ATO lists insurance premiums among general business operating expenses, including accident or disability, fire, burglary, professional indemnity, public risk, motor vehicle, loss of profits and workers compensation. You can claim the part that relates to earning business income. If a vehicle or phone is used privately as well, apportion the premium.
Premiums for the owner
Insurance on your own life is treated differently. The ATO income protection page says only premiums that protect your income are deductible. Life, trauma and critical care premiums are not, and neither is cover inside your super fund paid from your contributions. Income protection benefits you receive are taxable.
Prepaid annual premiums
Under the ATO prepaid expenses rules for small business entities, a business with aggregated turnover under $10 million can generally deduct prepaid expenditure in the year it is incurred if the period covered is 12 months or less and ends by the last day of the next income year. Most annual policies fit that rule.
| Item on the insurance invoice | GST credit? | Income tax deduction? |
|---|---|---|
| Business premium (general insurance) | Yes, the GST included, if registered | Yes, excluding any GST credit claimed |
| Stamp duty on the premium | No | Yes, as part of the policy cost |
| Life insurance (input taxed) | No | No |
| Owner income protection | No GST credit in the business | Generally yes, in your personal return |
How does GST work on insurance premiums and claims?
The ATO GST and insurance page says you can claim a full or partial credit for the GST included in a business premium. Stamp duty is not part of the GST amount. Life insurance is input taxed and health insurance is GST-free, so neither carries a credit. Report the GST credit on your BAS; our activity statement guide covers the labels.
Claims are where GST mistakes cost money. Under the ATO insurance settlements guidance, you should tell the insurer what share of the premium you can claim GST credits on before you lodge a claim. If you do, you will not have a GST liability on the settlement. If you do not, you may have to pay GST on part of the payout.
Worked example: deducting a startup’s first annual policy
Kaur Design Pty Ltd is a small business entity registered for GST. On 1 May 2026 it pays for a public liability and professional indemnity package covering 1 May 2026 to 30 April 2027. The tax invoice (figures are illustrative only) shows a premium of $1,800, GST of $180 and stamp duty of $198, so the total paid is $1,800 + $180 + $198 = $2,178.
GST: the company claims a $180 GST credit on its BAS for the period that includes May 2026.
Income tax: the deductible amount is the total paid less the GST credit: $2,178 – $180 = $1,998.
Timing: the cover runs for 12 months and ends on 30 April 2027, before 30 June 2027, so the prepaid expenses rule for small business lets the company deduct the full $1,998 in 2025-26 rather than spreading it across two years.
Before making any claim on the policy, the company tells the insurer it can claim 100% of the GST on the premium.
Rule of thumb: if the policy protects the business, deduct it in the business; if it protects your life, it is not deductible; if it replaces your personal income, claim it in your own return.
How should a startup set up and record its insurance?
- List your risks first: employees, vehicles, premises, client advice, customer data, stock and equipment.
- Check licence, lease and contract requirements for compulsory cover and minimum limits.
- Register for workers compensation before your first employee starts; our payroll registration checklist covers the other registrations.
- Make sure each policy names the entity that carries on the business.
- Keep tax invoices, certificates of currency and renewal dates with your records, and diarise a review before each renewal.
Insurance is one line in a startup budget. Our business start-up accounting service helps set up the structure, registrations and bookkeeping around it, and our company secretarial services keep ASIC records for company directors up to date. For other expenses you can claim, see our small business tax deductions guide.
Common mistakes startups make with insurance
- Hiring before insuring: putting on an employee or casual before the workers compensation policy is in place.
- Wrong insured party: keeping a sole trader policy after the business moves into a company or trust.
- Assuming contractors are excluded: some state schemes treat certain contractors as workers.
- Claiming GST on stamp duty: only the GST shown on the tax invoice is a credit.
- Not telling the insurer about GST credits: this can leave a GST bill on the claim settlement.
FAQ about business insurance for startups
What business insurance is compulsory for a startup in Australia?
Workers compensation is compulsory once you employ staff, and it must come from an authorised insurer in your state or territory. Third party personal injury cover applies if the business uses motor vehicles and is often included in registration. Some occupations must also hold public liability or professional indemnity cover before they can legally operate, so check the licensing rules for your industry.
Are business insurance premiums tax deductible?
Generally yes. The ATO lists insurance premiums, including public risk, professional indemnity, fire, burglary, motor vehicle, loss of profits and workers compensation, as business operating expenses. You claim the business share only. If you are registered for GST, you claim the GST on the premium as a credit on your BAS and deduct the rest of the cost.
Do sole traders need workers compensation for themselves?
No. Workers compensation protects employees, and sole traders are not covered by it. business.gov.au suggests sole traders consider accident and sickness or income protection cover instead. If you hire employees, you will need a workers compensation policy for them in the state or territory where they work.
Can I claim my income protection premiums as a sole trader?
Premiums for a policy that replaces your income if you cannot work are generally deductible in your personal return, and any benefit paid is taxable income. Life, trauma and critical care insurance premiums are not deductible, and you cannot claim premiums for cover held inside your super fund that is paid from your contributions.
How often should a startup review its insurance?
At least once a year before renewal, and whenever the business changes. Hiring your first employee, moving into leased premises, signing a large client contract, buying equipment or converting from a sole trader to a company can all change what cover you need and what the policy should name as the insured party.
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Nanak Accountants can review your startup structure, registrations and tax treatment of your insurance costs so you claim the right amounts from day one. Call 1300 626 258 or book a free 15-minute consultation. You can also find all our services at nanakaccountants.com.au.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against business.gov.au, Fair Work Ombudsman, state workers compensation regulator websites and the ATO operating expenses, prepaid expenses, income protection, GST and insurance and insurance settlements pages on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
