Private ruling: Assessability of income received
Published: August 2013
Ruling period: 1 July 2012

Ruling: Q1: Are the fortnightly compensation benefit payments you receive assessable income? | A1: Yes. | Q2: Are the payments you received from Centrelink assessable income? | A2: No. | Q3: Is the funeral benefit you received assessable income? | A3: No. | Q4: Are the lump sum compensation payments you received assessable income? | A4: No.

Relevant facts and circumstances: Your spouse passed away and you made a claim for the funeral benefit. You were awarded compensation for the loss of your spouse. Your compensation entitlement included a lump sum amount and a fortnightly benefit. The lump sum payment was paid separate to and in addition to the fortnightly benefit. In the 2012-13 financial year you received various payments from Centrelink. You had a fall and you have made a personal injury claim against the business' insurer. You were awarded an out of court settlement to finalise the claim and you received a lump sum payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)

Reasons for decision: Summary: Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year. Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: · are earned · are expected · are relied upon · have an element of periodicity, recurrence or regularity. | Detailed Reasoning - Fortnightly compensation benefit payments: In your case, you have been awarded a fortnightly compensation benefit payment as a result of the loss of your spouse. These payments retain the characteristics of income as they are expected, relied upon and are have the element of recurrence or regularity and are fully assessable as ordinary income. Therefore, you will need to include these payments in your income tax return. | Detailed Reasoning - Centrelink payments: Your Centrelink payments are all exempt from income tax and do not need to be included in your income tax return. | Detailed Reasoning - Funeral benefit: The funeral benefit is a one-off payment. The payment is not considered to be ordinary income and there are no other provisions in the legislation which would make the payment assessable. Therefore, you are not required to include this amount in your income tax return. | Detailed Reasoning - Lump sum compensation payment and Personal injury lump sum payment: Part of your compensation awarded was in the form of a lump sum payment which you received in the 2012-13 financial year. You also received a lump sum settlement amount in relation to your personal injury claim. These amounts are not income from rendering personal services, income from property or income from carrying on a business. They are also not earned, expected or relied upon and are both a one-off payment and thus do not have an element of recurrence or regularity. The lump sum payments are not considered to be ordinary income. | Detailed Reasoning - Capital gains tax (CGT): Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(b) of the ITAA 1997 disregards a capital gain where the amount relates to compensation or damages received for any 'wrong, injury or illness you or your relative suffer personally'. The lump sums you received are considered to be exempt from CGT. | Detailed Reasoning - Conclusion: As the amounts are not ordinary or statutory income they are not assessable income. Therefore no part of the lump sum amounts you have received are required to be included in your income tax return.