Private ruling: Lump sum payment
Date of advice: 18 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the lump sum you received assessable income? | A1: No.

Relevant facts and circumstances: You are Australian resident for taxation purposes. You are the sole beneficiary of your relative's estate. Your relative suddenly passed away. Upon their passing you received a lump sum payment from an overseas life assurance company. The amount you received is a one off payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 118-37 | Income Tax Assessment Act 1997 Section 118-300 | Income Tax Assessment Act 1997 Section 995-1

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 amount you received is not income from rendering personal services, income from property or income from carrying on a business. It was also not earned, expected or relied upon and is a one-off payment and thus it does not have an element of recurrence or regularity. The lump sum payment that you received is not considered to be ordinary income. Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(b) of the ITAA 1997 disregards a capital gain where the amount relates to compensation or damages received for any 'wrong, injury or illness you or your relative suffer personally'. 'Relative' is defined under section 995-1 of the ITAA 1997 as: • a person's spouse, or • the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person or of that person's spouse, or • the spouse of a person referred to in paragraph (b). The lump sum payment was made to you as the beneficiary relative of the deceased and therefore, falls within the definition of a relative. The payment is directly related to the loss of your relative, and as such the payment will be exempt from CGT under paragraph 118-37(1)(b) of the ITAA 1997. Also, section 118-300 provides for a CGT exemption for beneficiaries of life insurance policies. As the lump sum death benefit you were paid is not ordinary income or statutory income it is not assessable income. Therefore no part of the lump sum amount you have received is required to be included in your income tax return.