Private ruling: Lump sum in arrears tax offset
Date of advice: 10 July 2020
Published: August 2020
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Are you assessable on the Arrears Payment in the income year you received it? | A1: Yes, the Arrears Payment paid to you to replace the earnings that were lost are assessable as ordinary income in the year in which they were received. | Q2: Are you entitled to a lump sum in arrears tax offset in relation to the Arrears Payment? | A2: Yes, the Arrears Payment that you received, and which accrued in part in earlier income years, is eligible for the lump sum in arrears tax offset for the preceding years.

Relevant facts and circumstances: You became a member of your Superannuation Fund due to your former employment. Your Superannuation Fund provided an option allowing for additional superannuation benefits to be payable to you in certain invalidity situations. Your Superannuation Fund took out an insurance policy with Company 1 to fund these additional superannuation benefits if they were required to be paid. The additional superannuation benefits would only be payable to you if you met the conditions under Company 1's insurance policy. You suffered a medical condition and sought to access the additional superannuation benefits that you believed you were entitled to. Company 1 rejected your claim thereby denying your right to these additional superannuation benefits. You sued your Superannuation Fund and Company 1 and received a favourable judgement. You received an Arrears Payment in the amount of $XXX (less tax of $XXX) from your Superannuation Fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Section 159RA | Income Tax Assessment Act 1936 Section 159ZRA | Income Tax Assessment Act 1936 Section 159ZRB Other relevant comments | Payments that relate to an earlier income year or years should normally be shown at 'E' on your PAYG payment summary. The Tax Office calculates your lump sum in arrears entitlement when you lodge your tax return. You will need to include the lump sum arrears payment at Question 24 Other Income (Supplementary section) and include the amount of tax withheld from this income. In order for us to calculate your lump sum in arrears tax offset, you will need to provide the amount of your taxable income for each of the income years that the payment related to other than the 2019 income year. Also, you will need to include a statement in your tax return that shows the portion of the lump sum arrears payment that relates to each income year involved