Private ruling: Compensation payment
Published: May 2012
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the compensation payment you will receive assessable income? | A1: No

Relevant facts and circumstances: You are to receive a compensation payment . You have provided a copy of a Notice of Determination. The notice states that you have been awarded a compensation payment and the amount has been determined under the matters specified in the relevant legislation. This is a one off payment for compensation made by the tribunal.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 102-5 | Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)

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 taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has been held to include income from providing 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 · have an element of periodicity, recurrence or regularity The lump sum you will receive was not earned by you as it does not relate to services performed. The payment is also a one off payment and thus it does not have an element of recurrence or regularity. Compensation receipts which substitute for income have been held by the courts to be income under ordinary concepts. However no component of the amount you received was to compensate for loss of income. Accordingly, the lump sum payment you will receive is not ordinary income and is therefore not assessable under section 6-5 of the ITAA 1997. Statutory income is amounts that are not ordinary income but are included in assessable income by another provision. Section 102-5 of the ITAA 1997 provides that assessable income includes net capital gains for the income year. However, a capital gain made where the amount relates to compensation or damages you receive for any wrong, injury or illness you suffer personally is disregarded, paragraph 118-37(1)(b) of the ITAA 1997. As the compensation amount you will receive is not assessable as either ordinary income or statutory income, no part of it is included in your assessable income.

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