Private ruling: Compensation Payment
Date of advice: 8 April 2019
Published: May 2019
Ruling period: Period ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the insurance compensation payment received taxable in Australia? | A1: No The compensation payment received which is identified and calculated as an amount for the loss of earning capacity is not deemed to be statutory or ordinary income. Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary or statutory income it is not assessable income. No part of the compensation you received for loss of earning capacity is taxable in Australia.

Relevant facts and circumstances: You are a national of Country W. You are not a tax resident of Australia. You were involved in a car accident while on visiting Australia. You sustained serious injuries in the accident. The relevant insurer has wholly admitted liability for your claim. The statutory benefits scheme entitles claimants to weekly benefits based on their pre-injury earnings. The payments are made fortnightly and are terminated at retirement age. A person is only entitled to receive weekly payments if they reside outside of Australia where the loss of earnings is likely to be permanent. It was determined that your loss of earnings is likely to be of a permanent nature. A certificate of capacity/certificate of fitness certifies you as having no capacity for any work.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 6-15 | Income Tax Assessment Act 1997 subparagraph 118-37(1)(a)(ii)