Private ruling: Lump sum payment in arrears tax offset
Date of advice: 21 June 2018
Published: August 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a lump sum payment in arrears tax offset? | A1: Yes

Relevant facts and circumstances: You received a lump sum income protection payment from your superannuation fund during the 2017-18 financial year. The payment was for loss of income over three years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1936 Subsection 159ZR(1)

Reasons for decision: Detailed Reasoning - Lump sum payment in arrears tax offset: Individual taxpayers who receive assessable lump sum payments containing an amount that accrued in earlier income years may be entitled to a tax offset under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936). The tax offset is intended to overcome the problem of the lump sum attracting more tax in the year of receipt than would have been payable if the payment had been taxed in the year in which it accrued. A person is entitled to a lump sum payment in arrears tax offset where: ● the assessable income of the taxpayer of a year of income includes an eligible lump sum, and; ● the total arrears amount is not less than 10% of the amount (if any) remaining after deducting the total arrears amount from the normal taxable income of the current year. You received a lump sum payment under an insurance policy owned by your superannuation fund, calculated monthly, because you were unable to work for a period of time. The payment accrued in earlier income years and is greater than 10% of your taxable income. Therefore, the payment you received meets the definition of a lump sum payment in arrears. When completing your income tax return for the year: ● declare the full amount of the lump sum payment in arrears at Question 24: Other Income on the tax return in the Supplement section; and ● attach a separate piece of paper titled Schedule of additional information – Other Income containing the following information: ● the years to which the payment related, and ● the amount attributable to each year. We will then calculate your tax offset.