Private ruling: Sickness payments
Published: June 2013
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Can the sickness payments you received during the 2011-12 financial year, which relate to the 2010-11 financial year, be declared as income in the 2010-11 financial year? | A1: No.

Relevant facts and circumstances: You were diagnosed with a medical condition. You received sickness payments. The payments were received during the 2011-12 financial year. Some of the payments had accrued during the 2010-11 financial year. Tax was withheld from the payments.

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

Reasons for decision: Summary: Under section 6-5 of the Income Tax Assessment Act 1997 income is assessable in the income period in which it is derived. Taxation Ruling TR 98/1 discusses the appropriate method of determining when income has been derived and hence when it is assessable. There are two basic methods of tax accounting the receipts or cash method and the accruals or earnings method. Under the receipts method, income is derived when it is received, either actually or constructively. The receipts method is used for income which is not derived in the course of carrying on a business and generally used by individual taxpayers. Under the receipts method, income is derived when it is received by the taxpayer or is dealt with on the taxpayers' behalf. You received the sickness payments as you were unable to work and not in the course of carrying on a business. As an individual you are deemed to use the cash receipts methods. Hence, you are considered to have derived the sickness payments when you received them, that is, in the 2011-12 financial year. You are required to declare the full amount of the sickness payments in the 2011-12 financial year even though part of the payments relate to an earlier financial year.