Private ruling: Income protection payment
Date of advice: 20 June 2017
Published: October 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and answer | Is the lump sum amount received by you to replace monthly income protection payments assessable income? | Yes.

Relevant facts and circumstances: You were receiving monthly income protection payments. You agreed to receive a lump sum payment in lieu of the monthly payments.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2)

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Based on case law, it can be said that ordinary income generally includes receipts that: ● are earned ● are expected ● are relied upon, and ● have an element of periodicity, recurrence or regularity. An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( FC of T v Dixon (1952) 86 CLR 540). You agreed to receive a lump sum payment in lieu of monthly income protection payments. The income protection payment is compensation relating to loss of income and is assessable. This payment forms part of your assessable income in the year it is derived and must be included in your tax return.