Private ruling: Income arrears payment
Published: December 2011
Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you assessable on a lump sum arrears payment made under a superannuation income protection policy in the financial year you received it? | A1: Yes.

Relevant facts and circumstances: You sustained a workplace injury. You took legal action to claim income protection benefits through your superannuation group policy. You were paid a lump sum payment, which accrued in prior financial years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tx Assessment Act 1997 Subsection 6-5(2)

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Income protection policies provide for periodic payments in the event of loss of income caused by the insured becoming disabled through sickness or injury. These payments are assessable as income under section 6-5 of the ITAA 1997, as they are paid to take the place of lost earnings. An amount received as a lump sum representing arrears of monthly compensation payments is classified as ordinary income and is assessable in the year received. This is the case even though the payment relates to earlier income years. In your case, the amount you received represents a back-payment of periodic income protection payments. The lump sum amount you received is a payment of loss of income and so is fully assessable when received. As the lump sum payment was actually received in the 2010-11 financial year, the amount is assessable in full in that income year.

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