Private ruling: Income-compensation payment
Published: March 2015
Ruling period: Year ended 30 June 2015 | This scheme commenced on: | 1 July 2014

Ruling: Q1: Will the lump sum amounts or any portion be included in your assessable income? | A1: No. | Q2: Will any capital gain arising from the lump sum amounts be disregarded? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 15-30 | Income Tax Assessment Act 1997 Section 118-37

Reasons for decision: Detailed Reasoning - Assessable income: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with receipts of ordinary income. It does not operate to include in assessable income amounts of a capital nature. The lump sum amounts are to be paid under the legislative provisions. The money to be received will be in satisfaction of giving up your rights to weekly income maintenance payments, future medical expenses and non-economic loss incurred by you. These are rights of a capital nature and the money to be received to compensate you for their relinquishment will similarly be of a capital nature. Section 6-5 of the ITAA 1997 will not apply to the lump sum amounts. | Detailed Reasoning - Insurance payment: Section 15-30 of the ITAA 1997 operates to include in assessable income: any amount received by way of insurance or indemnity for the loss of an amount if: (a) the loss amount would have been included in your assessable income; and (b) the amount you receive is not assessable as ordinary income under section 6-5. The lump sum amounts paid under the legislative provisions do not meet this description as they are not paid for loss of earnings but in satisfaction of the giving up of capital rights. Section 15-30 of the ITAA 1997 will not apply to the lump sum amounts. | Detailed Reasoning - Capital gains tax: Section 118-37 of the ITAA 1997 states that you may disregard any capital gain or capital loss from any capital gains tax event 'relating directly….. to compensation or damages you receive for any wrong or injury you suffer in your occupation.' The lump sum amounts paid under the legislative provisions meet this description. Section 118-37 of the ITAA 1997 will apply to the lump sum amounts so that any capital gain or capital loss you make will be disregarded. Accordingly, the compensation payment you received is not assessable under either section 6-5 of the ITAA 1997 or section 6-10 of the ITAA 1997.

Relevant facts: You sustained a work injury. | As a result of these injuries you are entitled to receive weekly income maintenance and medical expenses and expenses for non-economic loss pursuant to legislative provisions. | You have accepted a number of 'once and for all' payments which would extinguish any future rights you have to weekly income maintenance payments, medical expenses and expenses for non-economic loss.