Private ruling: Lump sum compensation payment
Date of advice: 22 November 2024
Published: 10 March 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is any of the lump sum payment you received included in your assessable income? | A1: No. Income Tax Ruling IT 2193 Income tax: compensation for loss of earning capacity confirms that payments which are compensation for loss of earning capacity are capital in nature and not assessable as ordinary income. Interest for the period before a lump sum compensation payment for personal injury was determined, is also capital in nature and not assessable as ordinary income as per ATO Interpretative Decision ATO ID 2010/213 Income Tax: Assessability of pre-judgment interest . The receipt of compensation amounts may constitute statutory income as capital gains. However, any capital gains tax (CGT) consequences that arise from receiving compensation for personal injury are disregarded due to the exemption in subparagraph 118-37(1)(a)(ii) of the Income Tax Assessment Act 1997.

Relevant facts and circumstances: In 20XX, you were a passenger in a car accident. As a result of the accident, you sustained an injury. Both the owner and the driver of the vehicle were insured and following the accident, you made an insurance claim with the insurer. The statute that governed the compensation payment provides for the payment of damages for loss of earning capacity. The insurer agreed to pay you a lump sum amount comprising of amounts for pain and suffering, future care and treatment, loss of earning capacity, past Medicare payments and interest. This amount constituted the full and final settlement of any claims that you may have against the insurer, driver and owner of the vehicle.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 subparagraph 118-137(1)(a)(ii)