Private ruling: Lump sum payment
Published: August 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the lump sum received assessable income? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Subsection 6-10(4) | Income Tax Assessment Act 1997 Section 6-20 | Income Tax Assessment Act 1997 Section 55-5 | Income Tax Assessment Act 1997 Division 301

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. The assessable income of an Australian resident also includes your statutory income from all sources (subsection 6-10(4) of the ITAA 1997). An amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law (section 6-20 of the ITAA 1997). Divisions 51, 52, 53 and 54 of the ITAA 1997 provide that certain amounts of income are exempt from income tax. However, section 55-5 of the ITAA 1997 states that any amount or pension paid under certain listed Acts or provisions, or under schemes established under them, will not be exempt. The relevant Act is one of the Acts listed in section 55-5 of the ITAA 1997. Subsection 55-5(2) of the ITAA 1997 states that this section operates despite anything contained in any other provision of this Part. In your case, your payment was considered under the provisions that relate to the granting of pensions and benefits in respect of incapacity. Your pension is assessable under Division 301 of the ITAA 1997. Your payment is not exempted by any provision of either the Income Tax Assessment Act 1936 or the ITAA 1997. Although your payment was made due to your incapacity to perform your duties, this does not mean that the subsequent payment is exempt. It is acknowledged that certain pensions paid by the Department of Veterans Affairs such as a pension in respect of war-caused death or incapacity paid under the Veterans' Entitlements Act 1986 are exempt under Division 52 of the ITAA 1997. However, the legislation does not provide an exemption for the benefits paid to you. On the contrary, the payment is specifically not exempt from income tax under section 55-5 of the ITAA 1997. As your payment is not exempt, the lump sum payment is assessable income.

Relevant facts: The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | § the application for private ruling including details of the payment. | You suffered injury while employed. | You were discharged from your employment many years ago. | You have been fighting for compensation since your discharge. | A few years ago you were advised that there was not sufficient evidence to support a view that you suffered a medical condition at the time of discharge. | Later a fresh review was considered. | You were subsequently notified that pursuant to the requirements of the relevant section of the relevant Act grounds existed upon which you could have been retired on the ground of incapacity to perform your duties. You were therefore eligible for compensation payments. | You were notified by letter that you were entitled to a lump sum payment. The payment was at an annual rate. You are entitled to an ongoing fortnightly pension payment.