Private ruling: Assessability of income received – Victims of Crime Payment
Date of advice: 20 September 2017
Published: February 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the lump sum compensation payment you received assessable income? | A1: No

Relevant facts and circumstances: You were awarded compensation as a victim of crime.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Section 6-5 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. You were involved in an accident and as a result suffered injuries. You have now received a lump sum payment for pain and suffering, future medical treatments. The payment was not earned by you as it does not relate to services performed. The payment is also a one off payment and thus it does not have an element of recurrence or regularity. Although the payment can be said to be expected, and perhaps relied upon, this expectation arises from the pain, suffering and medical treatment required resulting from the injury, rather than from a relationship to personal services performed. Accordingly, the lump sum payment is not ordinary income and is therefore, not assessable under section 6-5 of the ITAA 1997. | 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.