Private ruling: Compensation
Date of advice: 15 September 2017
Published: January 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Question and answer | Is the victim of crime lump sum compensation payment that you received assessable income? | No

Relevant facts and circumstances: You were a victim of crime. You received a victim of crime lump sum compensation payment. This payment was a once off payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-1(1) | Income Tax Assessment Act 1997 Section 6-5 | Income Tax assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)

Reasons for decision: Summary: Subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income consists of ordinary income and statutory income. | Detailed Reasoning - Ordinary income: Section 6-5 of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts, which is called 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. In your case, the payment you are entitled to receive is compensation for suffering caused by being a victim of crime. The payment does not have the characteristics of ordinary income and was not earned by you and did not relate to services performed. The payment is also a one-off payment and does not have an element of recurrence or regularity. Although the payment can be said to be expected and perhaps relied upon, this expectation arises from suffering resulting from being a victim of crime. Therefore the lump sum payment is not income according to ordinary concepts and is not assessable under section 6-5 of the ITAA 1997. | Detailed Reasoning - Statutory income: Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by specific provisions of the income tax law, are called statutory income. These specific provisions of the income tax law are listed in section 10-5 of the ITAA 1997, and include the capital gains tax (CGT) provisions. Receipt of a lump sum payment may give rise to a capital gain. However, paragraph 118-37(1)(b) of the ITAA 1997 disregards payments or receipts for capital gains purposes where the amount relates to compensation or damages a person receives for any personal wrong, injury or illness. In your case, the payment was made to you as a result of being a victim of crime, which is a personal wrong, and as such the payment is exempt from CGT under paragraph 118-37(1)(b) of the ITAA 1997. | Detailed Reasoning - Conclusion: As the victim of crime lump sum compensation payment is not ordinary income or a capital gain, it is not assessable income and does not need to be included in your income tax return.