Private ruling: Insurance payment
Date of advice: 14 July 2015
Published: July 2015
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the insurance payment for lost trading stock included in your assessable income? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 70-115.

Reasons for decision: Summary: Insurance or indemnity receipts may be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), but they may also be assessable statutory income under special provisions of the ITAA 1997: • section 15-30 of the ITAA 1997 - insurance proceeds or other amounts received by way of indemnity to compensate for loss of income that would have been assessable; • subsection 20-20(2) of the ITAA 1997 - recoupment, by way of insurance or indemnity, of a deductible loss or outgoing; and • section 70-115 of the ITAA 1997 - insurance proceeds, or other amounts received by way of indemnity, for lost trading stock which is not ordinary income. In your case, section 70-115 of the ITAA 1997 is particularly relevant. Under section 70-115 assessable income includes an amount that (a) you receive by way of insurance or indemnity for a loss of trading stock; and (b) is not assessable as ordinary income under section 6-5 of the ITAA 1997. The inclusion of an item of trading stock on hand at the beginning of the income year, and the exclusion of that item from trading stock on hand at the end of the income year, effectively allows a deduction for the cost of trading stock disposed of during the year. If trading stock is lost or destroyed by fire or flood, the taxable income is reduced because such items of trading stock are no longer on hand, and are not taken into account at the end of the income year. Therefore, the effect of subsequently receiving an insurance payment for lost trading stock is generally a nil balance for taxation purposes. That is, a deduction is claimed for the trading stock lost or damaged in the fire and then although the insurance payment is assessable income, such a payment is generally no more than the amount previously claimed as a deduction or reduction in trading stock. As outlined above, the insurance payment received for the loss of trading stock is assessable income under section 70-115 of the ITAA 1997.

Relevant facts: There was a fire at the business premises. | The business suffered considerable loss of stock and damage to the building. | You received some insurance money; however the insurance company did not pay out for the full amount suffered.