Private ruling: Assessable income
Date of advice: 2 April 2024
Published: 13 May 2024
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022 | Year ended 30 June 2023 | Year ending 30 June 2024
Date scheme commenced: 1 July 2013

Ruling: Q1: Are your income protection payments assessable income? | A1: Yes.

Relevant facts and circumstances: You receive income protection payments. You have been receiving these payments for a number of years. Your payments are made periodically. You receive a percentage of your usual income through these payments.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: • are earned • are expected • are relied upon, and • have an element of periodicity, recurrence or regularity. Payments of salary or wages, including payments made under an insurance policy that replaces salary or wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997. An amount paid to compensate for loss generally acquires the same nature of what it is substituting. Compensation payments which substitute income have been held by the courts to be income under ordinary concepts ( FC of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142; Tinkler v. FC of T (1979) 10 ATR 411; 79 ATC 4641; Case Y47 (1991) 22 ATR 3422; 91 ATC 433). ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). The payments you received due to an injury suffered represents periodic amounts of income that would be income received if you were still working. Even if the receipts were not directly attributable to employment or services rendered, the expected regular periodical payments have the character of ordinary income. This is because the benefits are a replacement of employment income during the period of total or partial disability ( FC of T v. D.P. Smith (1981) 147 CLR 578; 81 ATC 4114; 11 ATR 538). Therefore, periodic payments received during a period of total or partial disability under an insurance policy are assessable on the same principle as salary and wages. In your case, the income protection policy provides you with a replacement of your income which is ordinary income and included in your assessable income under section 6-5 of the ITAA 1997 in the income year in which the payments are received. The Commissioner does not have the discretion to exempt these payments from being assessable.