Private ruling: Compensation - income
Date of advice: 28 April 2026
Published: 6 July 2026
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the consideration received under the Neighbour Benefits Deed be included in assessable income as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will the consideration received under the Neighbour Benefits Deed be disregarded under subparagraph 118-37(1)(a)(ii) of ITAA 1997? | A2: No. | Q3: Will the compensation received under the Deed of Release be included in assessable income as ordinary income under section 6-5 of the ITAA 1997? | A3: No. | Q4: Will the compensation received under the Deed of Release be disregarded under subparagraph 118-37(1)(a)(ii) of ITAA 1997? | A4: No.

Relevant facts and circumstances: Background Person A and Person B (You) is a family partnership that operates a primary production business on a specified address (the Property), which they are using as their primary residence. X project and execution of deeds Company A proposes to develop, construct, operate, and ultimately decommission the X project, subject to obtaining the necessary approvals under the relevant State or Territory planning legislation. Company A has undertaken modelling for the project and forecasts that the X levels at your dwelling may exceed the thresholds prescribed. You executed a Deed of Release and a Neighbour Benefits Deed with Company A on a specified date in relation to a X project situated in close proximity to the Property. Pursuant to the Deed of Release, you have agreed to accept the increased X levels at the existing dwelling. Deed of Release state that the land contains an existing dwelling classified as a sensitive land use, that modelling undertaken by the developer predicts X levels at the dwelling may exceed the limits prescribed, and that the parties have entered into the Deed to record the owner's acceptance of these increased acoustic levels. Annexed schedule of the Neighbour Benefits Deed identifies potential impacts from the X project, including visual impacts from X, changes to the X, and potential X, which may reduce residential amenity. It also notes increased traffic and associated noise during the construction phase, as well as noise, dust, and other inconveniences arising from construction, development, and eventual decommissioning activities affecting the landowner's use of the dwelling. Under the Neighbour Benefits Deed, you agree not to bring or pursue any claims or proceedings against the developer or its related entities in relation to impacts of the X project, unless the developer is in material breach of the Deed or a project approval and that breach caused the claim. You also release the developer and its related entities from all claims arising from those impacts and acknowledge that the Deed may be relied upon as a complete defence to any such claim or proceeding. Payments under the executed deeds Under the Deed of Release, you are entitled to receive an annual compensation payment as consideration for entering into the Deed. The payment is to be made annually in advance, commencing once the developer notifies you that the project has reached financial close, and continuing for the duration of the term. The compensation payment is subject to annual escalation in line with either a fixed percentage increase or the applicable CPI increase, whichever is greater. The amount payable varies depending on whether it falls during the construction period or after construction has concluded, with higher payments applying during the earlier phases of the project. In addition, you will receive ongoing consideration for entering into the Neighbour Benefits Deed. This consideration is payable annually, subject to escalation, and is calculated either as a fixed minimum amount or in accordance with the methodology set out in schedule of the Deed. The payments have not been made yet and will be adjusted by CPI each year. You anticipate a reduction in your property's value as a result of the X project.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 104-35 | Income Tax Assessment Act 1997 subsection 118-37(1) | Income Tax Assessment Act 1997 subparagraph 118-37(1)(a)(ii)

Reasons for decision: Summary: The consideration does not represent compensation claim for lost income but rather a payment made in settlement of a compensation claim. Accordingly, it is not ordinary income under section 6-5 of the ITAA 1997 and is not included in assessable income on this basis. The consideration is instead included in assessable income under the capital gains provisions of Part 3-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Ordinary income generally comprises amounts that are earned, expected, relied upon, and exhibit characteristics of periodicity, recurrence, or regularity. While the consideration you will receive may display some degree of regularity and may be expected or relied upon, that expectation arises from prospective damage to your property rather than from any nexus with personal services you have performed. Accordingly, the consideration does not constitute compensation for lost income. Instead, it is paid in settlement of a compensation claim. As such, the amounts are not ordinary income for the purposes of section 6-5 of ITAA 1997 and are not included in assessable income on this basis. The consideration is instead included in assessable income under the capital gains provisions of Part 3-1 of the ITAA 1997. In terms of identifying the relevant CGT asset, the land has not been disposed of yet, and the X project is expected to be decommissioned in a specified year. In these circumstances, the relevant underlying CGT asset is not the land itself but the right to seek compensation. While you technically receive an amount described as consideration, it is in substance best described as compensation. This right came into existence when the X operator created contractual or other legal or equitable rights for the benefit of the landowners upon execution of the Neighbour Benefits Deed. At that time, CGT event D1 occurred under section 104-35 of the ITAA 1997. The right is subsequently satisfied upon payment of the first amount of compensation, at which point the right comes to an end and CGT event C2 occurs under section 104-25 of the ITAA 1997. The capital proceeds from CGT event C2 are the total amount of money received, or entitled to be received, by the landowners as compensation. The CGT discount may apply to reduce any resulting capital gain, provided the relevant CGT asset - the right to compensation - has been held for at least 12 months. The 12-month holding period commences from the date the Neighbour Benefits Deed was signed. | Detailed Reasoning - Question 2: Will the consideration received under the Neighbour Benefits Deed be disregarded under subparagraph 118-37(1)(a)(ii) of ITAA 1997? | Summary: No, any capital gain will not be disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Subparagraph 118-37(1)(a)(ii) of the ITAA 1997 allows a capital gain to be disregarded where it arises from compensation or damages received for a wrong, injury, or illness suffered personally by a taxpayer. In your circumstances, section 118-37 does not apply because the compensation is not received for a wrong, injury or illness suffered personally by you. The loss of amenity relating to the land has arisen as a result of the X project impacts identified in the Neighbour Benefits Deed. The relevant injury or wrong has occurred to the land itself, rather than to you personally, with compensation paid to you as the landowner. Accordingly, the capital gain is not disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997. | Detailed Reasoning - Question 3: Will the compensation received under the Deed of Release be included in assessable income as ordinary income under section 6-5 of the ITAA 1997? | Summary: The compensation paid under the Deed of Release is a settlement payment and not compensation for lost income, and therefore is not included in assessable as ordinary income under section 6-5 of the ITAA 1997. The compensation is instead included in assessable income under the capital gains provisions of Part 3-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: As outlined in our response to Question 1, the compensation to be received under the Deed of Release does not constitute compensation for lost income; rather, the payments are made to you in settlement of a compensation claim. Accordingly, the amounts are not included in assessable income as ordinary income for the purposes of section 6-5 of ITAA 1997. The compensation is instead included in assessable income under the capital gains provisions of Part 3-1 of the ITAA 1997 for the same reasons as given in our response to Question 1. | Detailed Reasoning - Question 4: Will the compensation received under the Deed of Release be disregarded under subparagraph 118-37(1)(a)(ii) of ITAA 1997? | Summary: No, any capital gain will not be disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: As outlined in response to Question 2, any capital gain will not be disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997.