Private ruling: Lump sum payment
Date of advice: 22 September 2025
Published: 10 November 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the lump sum payment from the overseas authority assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. In your case, the lump sum amount is not income according to ordinary concepts. The lump sum amount does not bear the characteristics of ordinary income and lacks the element of periodicity, reoccurrence or regularity. It is also not a product of any employment or services provided by you. Therefore, the lump sum amount is capital in nature and will not be assessable as ordinary income under section 6-5 of the ITAA 1997. | Q2: Is the capital gain or loss arising in relation to the lump sum payment disregarded under the capital gains tax provisions? | A2: Yes. Subsection 6-10(4) of the ITAA 1997 provides that your assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The provisions dealing with statutory income are listed in section 10-5 of the ITAA 1997, which includes capital gains under section 102-5 of the ITAA 1997. The receipt of a lump sum payment may give rise to a capital gain. However, a capital gain or loss made upon the ending of a capital gains tax (CGT) asset acquired on or after 20 September 1985 is disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997, if the CGT event is in relation to compensation or damages received for any wrong, injury or illness you or your relative suffers personally. The lump sum amount is being paid to you in relation to your health issues experienced due to having a medical procedure. Therefore, any capital gain or capital loss arising from a CGT event will be disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997. As the lump sum payment is not assessable as either ordinary or statutory income, you are not required to include the amount in your assessable income on your tax return.

Relevant facts and circumstances: Background You are an Australian resident. While you were an overseas resident of Country X you had a medical procedure some years ago that caused you serious health issues in the following years. The Country X Government made compensation payments to those persons who had experienced the medical procedure under a scheme (the Scheme). The compensation payments were tax free for residents of Country X. You lodged an application under which you would receive a lump sum payment/s and ongoing monthly payments for the rest of your life under the Scheme. Your application was approved by the Country X government The payments under the Scheme were made because it was expected that you would have substantial and long-term difficulties when carrying out routine daily activities because of the medical procedure, and that you would have extra ongoing costs. You received several lump sum payments, an amount for a back-dated period, and ongoing monthly payments. Your application did not (and was not required to, nor requested) disclose any information in respect of your income capacity. You lodged a private ruling application seeking a decision in relation to the taxation treatment of the Scheme payments, with the notice of decision being issued in which it was determined that: • The lump sum amounts were not assessable as ordinary income under section 6-5 of the ITAA 1997, and any capital gain or loss made in relation to those amounts were disregarded under paragraph 118-37(1)(b) of the ITAA 1997 . • The ongoing monthly payments were assessable as ordinary income under section 6-5 of the ITAA 1997; and • The backdated amount was assessable as ordinary income under section 6-5 of the ITAA 1997. During the following year it was confirmed that an interim compensation lump sum amount would be paid to you as a registered beneficiary of the Scheme, being a one-off government interim payment. You received the payment of this lump sum amount. You lodged an application for a private ruling seeking a decision in relation to the taxation treatment of the lump sum payment, with the notice of decision being issue in which it was determined that: • The lump sum amount was not assessable as ordinary income under section 6-5 of the ITAA 1997; and • Any capital gain or loss arising in relation to the payment could be disregarded under paragraph 118-37(1)(b) of the ITAA 1997. Current offer The Scheme was closed to new applications and would remain open for a further calendar year, with a new Country X authority (the Authority) taking over the responsibility of making future compensation payments. During the ruling period the Authority made you an offer which contained several options. You will choose to receive a specified lump sum amount and continue to receive ongoing regular payments totalling a specified amount annually for the rest of your life. You will receive the payment of the lump sum amount during the ruling period.

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 102-20 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 paragraph 118-37(1)(b)