Private ruling: Lump sum payment
Date of advice: 22 July 2016
Published: August 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is your lump sum payment eligible income for lump sum payments in arrears tax offset purposes? | A1: No. | Q2: Are you entitled to a lump sum payment in arrears tax offset? | A2: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Section 159ZR | Income Tax Assessment Act 1936 Section 159ZRA

Reasons for decision: Detailed Reasoning - Detailed reasoning: Lump sum payment in arrears tax offset Under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), your lump sum is assessable in the 2014-15 financial year. Although the lump sum payment accrued in earlier years, the lump sum is assessable income in the year of receipt. Therefore, as you received the lump sum payments in the year ended 30 June 20XX, they are assessable in that income year. Individual taxpayers who receive assessable lump sum payments containing an amount that accrued in earlier income years may be entitled to a tax offset under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936). The tax offset is intended to overcome the problem of the lump sum attracting more tax in the year of receipt than would have been payable if the payment had been taxed in the year in which it accrued. A person is entitled to a lump sum payment in arrears tax offset where: • the assessable income of the taxpayer of a year of income includes an eligible lump sum, and • the total arrears amount is not less than 10% of the amount (if any) remaining after deducting the total arrears amount from the normal taxable income of the current year. Eligible lump sum means a lump sum payment of eligible income. Eligible income is defined in subsection 195ZR (1) of the ITAA 1997. Income by way of compensation in respect of an incapacity for work, being payments calculated at a periodical rate and not including payments made under an insurance policy to the owner of the policy is eligible for the tax offset (Paragraph (c) of the definition of eligible income under subsection 159ZR(1) of the ITAA 1936 and section 12-120 in Schedule 1 to the Taxation Administration Act 1953 ). In your case you are the owner of the policy. Therefore the lump sum payments made under the insurance policy to you is not regarded as eligible income. As you have not received 'eligible income' for the lump sum payment in arrears tax offset purposes, you are not entitled to a tax offset under section 159ZRA of the ITAA 1997. Therefore the lump sum payment should not be included at item 24 on your tax return.

Relevant facts: You are receiving payments from your Income Protection Insurance Policy (the policy). | In the 20XX-XX financial year you also received a lump sum payment under the policy relating to the relevant financial years.