Private ruling: Lump sum payment
Date of advice: 14 December 2015
Published: February 2016
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the payment received in the 20YY income year that relates to prior income years assessable in the year of receipt? | A1: Yes

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • the application for private ruling, • Copy of Superannuation letter, • Copy of backdated approval letter • Copy of Tax assessment and income historical, • Copy of completed 20XX-YY individual tax return, • Copy 20AA-BB payment summary You were employed for many years in a particular field. Due to the nature of the work you suffered ill health for a number of years. You applied to your super fund for a permanent disability pension. As a result of your application you were awarded a single lump sum payment in the 20XX-YY income year. This payment was for the 20AA-BB to 20XX-YY income years Assumption(s) None

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

Reasons for decision: Summary: Income amounts are generally included in the calculation of a taxpayer's taxable income in the year in which they are received. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) requires an amount of ordinary income to be brought to account as assessable income when it has been derived. Taxation Ruling TR 98/1 considers the appropriate method of determining when income is derived under subsection 6-5(2) of the ITAA 1997 where income is earned in one tax year but received in another. Paragraph 42 of TR 98/1 states that salary and wages or other employment remuneration is assessable on receipts basis. This is irrespective of whether that income relates to a past or future income period. Therefore, a lump sum amount of employment related income in arrears will be included in a taxpayer's taxable income in the year in which it is received. In your case, you received a lump sum in arrears payment from your super fund in the 20YY financial year, in respect of permanent disability benefit relating to previous financial years. This should be included in your assessable income for the 20YY financial year under section 6-5 of the ITAA 1997. Paragraph 42 of TR 98/1 states that salary and wages or other employment remuneration is assessable on a receipts basis. This is irrespective of whether that income relates to a past or future income period. Therefore, the lump sum payments of assessable income should be included as taxable income in the year in which it is received. Unfortunately there is no provision in the ITAA 1997 or Income Tax Assessment Act 1936 (ITAA 1936) that allows the Commissioner discretion to average lump sum payments that relate to income from other financial years.