Private ruling: Compensation payment
Date of advice: 13 June 2017
Published: October 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is a compensation payment of $X,XXX made to you regarded as assessable income? | A1: No Taxation Determination TD 93/58 explains the circumstances in which a lump sum compensation/settlement payment is assessable. You have been offered compensation for permanent impairment and non-economic loss. It is considered that no component of the amount you received was received to compensate you for loss of income. Therefore, your compensation is not assessable under section 6-5 of the ITAA 1997. Capital gains tax Taxation Ruling TR 95/35 deals with the capital gains treatment of compensation receipts. Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(a) of the ITAA 1997 disregards payment or receipts for capital gains purposes where the amount relates to compensation or damages a person receives for any personal wrong, injury or illness. The lump sum you will receive is considered to be exempt from CGT under paragraph 118-37(1)(a). Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary or statutory income it is not assessable income. Therefore no part of the settlement amount is required to be included in your income tax return.

Relevant facts and circumstances: You had an incident at work and sustained injuries which will be with you for life. You lodged a compensation claim and received an amount for permanent impairment and non-economic loss.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5. | Income Tax Assessment Act 1997 Subsection 6-15(1). | Income Tax Assessment Act 1997 Paragraph 118-37(1) (a).