Private ruling: Lump sum
Date of advice: 6 November 2025
Published: 22 December 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: Is the lump sum payment you will receive under the proposed commutation agreement assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. The lump sum that you will receive under the commutation agreement is in respect of a work injury your spouse suffered personally, which resulted in their passing. You were partially dependant on your spouse's income at the date of their passing and were entitled to weekly payments. The payment is for loss of financial support, not income for services or employment. The payment was not earned by you as it does not relate to services performed. The payment is also a one-off payment and thus it does not have an element of recurrence or regularity. Although the payment can be said to be expected, and perhaps relied upon, this expectation does not arise from a relationship to personal services performed. Accordingly, the compensation payment is not ordinary income and is therefore not assessable under section 6-5 of the ITAA 1997. Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income. Capital gains are included as assessable income under section 102-5 of the ITAA 1997. | Q2: Is the payment considered a capital gain? | A2: Yes. Paragraph 108-5(1)(b) of the ITAA 1997 specifically includes a legal or equitable right within the definition of a capital gains tax (CGT) asset. A taxpayer's right to seek compensation is therefore classified as an intangible CGT asset which is acquired at the time of the compensable wrong or injury. Parts 3-1 and 3-3 of the ITAA 1997 contain the capital gains and capital loss provisions commonly referred to as the CGT provisions. Section 104-25 of the ITAA 1997 provides that CGT event C2 happens on the ending of the right to seek compensation, such as the right to take legal action, when it is satisfied, surrendered, released or discharged. You make a capital gain if the capital proceeds from the ending are more than the asset's cost base. You make a capital loss if those proceeds are less than the asset's reduced cost base. A right to seek compensation is disposed of when the taxpayer agrees to a release, discharge, satisfaction or surrender of their right to seek compensation. This is generally at the final point of settlement of the claim and receiving the compensation as outlined at paragraph 158 of Taxation Ruling TR 95/35 Income tax: capital gains: treatment of compensation receipts . | Q3: Will the capital gain you make upon receiving the payment be disregarded under subsection 118-37(1) of the ITAA 1997? | A3: Yes. In accordance with the principles contained in TR 95/35, you can disregard any capital gain made in relation to the receipt of the settlement under subparagraph 118-37(1)(a)(ii) of the ITAA 1997 as the amounts are capital in nature that were received due to a wrong your spouse suffered personally.

Relevant facts and circumstances: You and Person A were married. For a period, Person A was a volunteer firefighter in presumptive employment with Employer A. On XX XXXX 20XX, Person A passed. The employer accepted that Person A passed as a result of a work injury pursuant to the provisions of the Return to Work Act 2014 (the Act) . On XX XXXX 20XX, Employer A determined that you were entitled to a lump sum. You received this payment on XX XXXX 20XX. On XX XXXX 20XX, Employer A determined you were partially dependant on Person A's income at the date they passed and you were entitled to weekly payments. You have previously paid tax on your weekly payments. Your entitlement to weekly earnings was increased by consent orders. In accordance with section 59(11) of the Act, you made an application to Employer A for a commutation payment. Employer A by orders decided to exercise its discretion and to commute the liability to make weekly payments to you. You will receive a commutation sum of $XX (the lump sum). The lump sum reflects the actuarial equivalent of weekly payments. The calculation of the actuarial equivalent of weekly payments, has been made under the principles prescribed in Regulation 35 of the Return to Work Regulations 2015 . The lump sum payment will wholly discharge Employer A's liability to make weekly payments to you. You will accept the commutation agreement and execute it in the 20XX income year. You will receive the lump sum in the 20XX income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 paragraph 108-5(1)(b) | Income Tax Assessment Act 1997 subparagraph 118-37(1)(a)(ii)