Private ruling: Total and Permanent Disability benefit - lump sum compensation
Date of advice: 23 August 2019
Published: October 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the lump sum payment received for Total Permanent Disability (TPD) assessable as ordinary income under section 6-5(2) of the Income Assessment Act 1997 (ITAA 1997)? | A1: No. The payment you received from the insurer is not being made to compensate you for the loss of earnings. Rather it is a one-off, lump sum amount to compensate you for the illness you suffer. Thus, this payment does not meet the ordinary income requirements under section 6-5 of the ITAA 1997 and is not an assessable income. It is also exempt from capital gain under subparagraph 118-37(1)(a)(ii) of the ITAA 1997.

Relevant facts and circumstances: You worked in the same occupation for several years. Before the relevant year, you ceased work as a result of an injury that left you unable to work again in your capacity or any other forms of physical labour. You continue to receive treatment for your injury. For several years, you had held a life insurance policy with Insurer A with a Total and Permanent Disability (TPD) component. Before the relevant year, you lodged a claim with Insurer A for TPD benefit and underwent medical examination. Your claim was accepted during the relevant year and you provided the amount of your benefit payable. You have provided relevant details of the policy.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 118-37