Private ruling: Capital Gains Tax - Compensation
Date of advice: 9 March 2016
Published: April 2016
Ruling period: 01 July 20XX to 30 June 20XX

Ruling: Questions and answers: | Is the lump sum insurance payment you received assessable income? | No.

Relevant facts and circumstances: You suffered a fractured limb at work. You are a Partner in a large partnership. The partnership has an insurance policy that covers current partners. The insurance policy schedule covers the insured for a number of medical events providing different payments such as salary continuance, critical illness etc. In the case of a claim the insurance company pays the proceeds to the Partnership which then distribute to the relevant partner. The injury you suffered is classed as a specific injury under the insurance policy schedule and provides for a lump sum benefit to be paid. You received a lump sum benefit payment in the income year ending 30 June 20XX. The receipt of this payment did not stop you from receiving your regular income.

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 6-15 | Income Tax Assessment Act 1997 subsection 118-37(1)

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: • are earned • are expected • are relied upon, and • have an element of periodicity, recurrence or regularity. The lump sum payment that you received does not exhibit these features as it was an unexpected event and you were still able to earn your regular income whilst receiving the payment. Therefore you do not satisfy the requirements of this section. Section 6-10 of the ITAA 1997 includes statutory income as assessable income. The payment you received is the capital proceeds of a CGT event relating directly to an injury suffered in your occupation so any resulting capital gain or loss is disregarded under subsection 118-37(1). Therefore, the lump sum payment that you received is not assessable income as per section 6-15 of the ITAA 1997.