Private ruling: Assessable income - compensation funds
Date of advice: 24 November 2023
Published: 22 January 2024
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the transfer of the proceeds of the compensation payment from a bank account in a foreign country to your Australian bank account subject to tax in Australia? | A1: No. The transfer of your own funds from a foreign bank account to your Australian bank account is not included in your assessable income and does not give rise to a capital gain. It is also noted that the potential liability to tax in Australia occurred when you received the payment some years ago. In your case, the lump sum payment was compensation for an accident that resulted in the death of a relative. The payment bore none of the characteristics of ordinary income as it lacked any element of periodicity, recurrence or regularity. Therefore, the lump sum payment was capital in nature and was not assessable as ordinary income at the time you received it. Further, any capital gain or capital loss that arose on receipt of the payment would have been disregarded under subparagraph 118-37(1)(a)(i) of the ITAA 1997 as it was received for a wrong, injury or illness your relative suffered.

Relevant facts and circumstances: Your relative died in an accident in a foreign country some years ago. A tribunal awarded you compensation some years ago with the stipulation the payment be placed in a fixed deposit in a bank in the foreign country, in your name, until it met a condition of release. You are arranging for the payment to be transferred from the bank account in the foreign country to your bank account in Australia.

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