Private ruling: Assessable income
Date of advice: 5 October 2021
Published: December 2021
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the regular payments you have received from your previous employer assessable income for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You were employed by the Police department. You were terminated from your position. You have appealed your termination through the Industrial Relation Commission (the Commission). The Commission ordered that you were to receive an amount equivalent to your base salary whilst awaiting the appeal to be finalised. Since these orders were made you have been receiving regular payments from the Police department. Tax has been withheld from these payments and you have been registered on the Police department PAYG system. No compensation documents have been provided that advise the payments you are receiving are compensation for any wrongdoing.

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

Reasons for decision: Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Ordinary income generally includes receipts that: • are earned • are expected • are relied upon, and • have an element of periodicity, recurrence or regularity. As per the order made by the Commission, you have been receiving regular payments from the Police Department equivalent to your base salary whilst awaiting the decision from the Commission of your appeal. The payments received represents regular amounts of income that would be considered to be income received if you were still working. The payments are compensating for that replacement of income therefore, compensating for loss of earned income. Payments to replace income are considered to be income. An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). In Dixon's case it was found that even if the receipts were not directly attributable to employment or services rendered, the expected regular periodical payments had the character of an ordinary income. As the character of the periodic payments is the same as your income whilst employed by the Police Department, the periodic payments received are assessable and must be included in your taxable income.