Private ruling: Maturity of a foreign life assurance policy
Date of advice: 26 September 2017
Published: February 2018
Ruling period: Financial year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Question and Answer | Does the lump sum payment you received need to be included in your assessable income in the year that it is received? | Yes

Relevant facts and circumstances: You were granted an amount at a Worker’s Compensation Arbitration. The order made by the arbitration service stated: Your employer pay you weekly payments of compensation for total incapacity from DD/MM/YYYY.

Relevant legislative provisions: Subsection 6-5(2) of the Income Tax Assessment Act 1997 | Section 54-45 of the Income Tax Assessment Act 1997 | Subsection118-37(1)(b) of the Income Tax Assessment Act 1997

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. An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; (1952) 10 ATD 82). Compensation payments that substitute for income have been held by the courts to be income under ordinary concepts ( Federal Commissioner of Taxation v. Inkster (1989) 24 FCR 53; 89 ATC 5142, (1989) 20 ATR 1516)). The order for weekly payments of compensation retains the characteristics of ordinary income even though it was paid as a lump sum. In your case, the arbitration service gave direction to determine your entitlement to compensation for injuries resulting in total incapacity for work. You have been paid a lump sum payment which represents a replacement of your employment income for the period from DD/MM/YYYY. The lump sum compensation amount you received is a payment for loss of income and is therefore, fully assessable when received. As the amount you received is not considered to be a payment for personal injury paragraph 118-37(1)(b) does not apply.