Private ruling: Compensation – victim of crime
Date of advice: 20 October 2017
Published: March 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the lump sum you received for loss of earnings assessable income? | A1: Yes.

Relevant facts and circumstances: You were the victim of a violent crime. You have received a loss of earnings grant paid under the State’s legislation. The amount paid was calculated with reference to your earnings prior to the act of violence and your earnings in the following financial years. The calculation also took into account the period of time that you were unable and/or unfit to work.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

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 the ordinary income they derived directly or indirectly from all sources, whether in or out of Australia, during the income year. In your case, you have received financial assistance in the form of a grant, for loss of earning as a result of an act of violence committed against you. For income tax purposes, an amount paid to compensate for a loss generally acquires the character of that for which it is substituted. Compensation payments which substitute income have been held by the courts to be income under ordinary concepts. Taxation Determination TD 93/58 Income tax: under what circumstances is the receipt of a lump sum compensation/settlement payment assessable? explains the circumstances in which a lump sum compensation/settlement payment is assessable, and states that such a payment is assessable income: ● if the payment is compensation for loss of income only (even when the basis of the calculation of the lump sum cannot be determined), or ● to the extent that a portion of the lump sum payment is identifiable and quantifiable as income. This will be possible where the parties either expressly or impliedly agree that a certain portion of the payment relates to a loss of an income nature. The loss of earnings grant is considered to be ordinary income as the amount has been paid and is based on your actual loss of income and is assessable under subsection 6-5(2) of the ITAA 1997.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.