Private ruling: Income
Published: July 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the portion of the payment received for reimbursement of expenses such as hotels and meals assessable income? | A1: No. | Q2: Is the portion of the payment received to reimburse you for lost wages assessable income? | A2: Yes.

Relevant facts and circumstances: You were affected by the grounding of aircraft by an airline. Your flight was cancelled due to a strike and you returned home one week later than you had planned. Due to an insufficient annual leave balance, you were forced to take leave without pay for the additional week. The airline agreed to pay all reasonable expenses incurred by you as a result of the grounding. You submitted an expense claim for items such as meals and accommodation. You also requested that you be reimbursed for the income you lost due to taking leave without pay. The airline agreed to pay all of your expenses and this money was deposited into your bank account. You did not receive a payment summary or a record of the payment from the airline.

Relevant legislative provisions: Income Tax Assessment Act1997 section 6-1.

Reasons for decision: Summary: Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Ordinary income has generally been held to include 3 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, expected, relied upon and have an element of periodicity, recurrence or regularity. An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( FC of T v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). Payments which substitute income have been held by the courts to be income under ordinary concepts. | Detailed Reasoning - Question 1 :: In your case, you received a payment from the airline to reimburse you for expenses incurred on meals, accommodation and lost wages. The portion of the payment that relates to the hotel and food expenses is a reimbursement for private expenses. This part of the payment is not assessable income. | Detailed Reasoning - Question 2:: The portion of the payment that relates to the lost wages replaces the salary and wages normally earned, expected and relied upon by you. This part of the payment is considered to be ordinary income as it acquires the character of the salary and wages that it replaces. Therefore, it is assessable under subsection 6-5 of the ITAA 1997.

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