Private ruling: Adjusted Taxable Income
Date of advice: 6 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Do the TPI Special rate payment amounts form part of your adjusted taxable income? | A1: Yes.

Relevant facts and circumstances: You were employed by an employer and had a major accident. The injury resultant from the accident caused a disability which lead to an inability to perform your duties. You receive tax free payments from the Relevant Department. The TPI special rate pension payment is paid as per section 24, Part II, of the Veterans' Entitlement Act 1986 .

Relevant legislative provisions: Income Tax Assessment Act 1936 section 161, | Income Tax Assessment Act 1936 section 6(1) and | A New Tax System (Family Assistance Act) 1999 schedule 3.

Reasons for decision: Summary: Requirement to lodge tax returns The requirement to lodge tax returns is provided by section 161 of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 161(1) states that every person must lodge a tax return for a given financial year, if required by the Commissioner by notice in the Gazette. Subsection 161A(1) states that the return must be in the approved form. Adjusted taxable income Some government payments are exempt from income tax but you still need to declare them on your tax return. This information is used to calculate your adjusted taxable income. Adjustable taxable income amounts are an income test that may be used to work out whether you are eligible to receive a range of government benefits and tax offsets, and what amounts you may need to pay to meet other associated obligations. The payments are: ● disability support pension (if you are below the pension age) ● child disability allowance ● carer adjustment payment ● Veterans' Affairs disability pensions and allowances. Section 6(1) of the ITAA 1936 defines adjusted taxable income as the definition of adjusted taxable income contained in Schedule 3 of the A New Tax System (Family Assistance Act) 1999 with parts 3 and 3A of Schedule 3 disregarded. Schedule 3 of A New Tax System (Family Assistance Act) 1999 defines adjusted taxable income as follows: For the purposes of this Act and subject to subclause (2), an individual's adjusted taxable income for a particular income year is the sum of the following amounts ( income components ): the individual's taxable income for that year; a) the individual's adjusted fringe benefits total for that year; b) the individual's target foreign income for that year; c) the individual's total net investment loss (within the meaning of the ITAA 1997) for that year; d) the individual's tax free pension or benefit for that year; e) the individual's reportable superannuation contributions (within the meaning of the ITAA 1997) for that year; f) less the amount of the individual's deductible child maintenance expenditure for that year. For the purposes of this Schedule, the following payments received in an income year are tax free pensions or benefits for that year: a) a disability support pension under Part 2.3 of the Social Security Act 1991 ; b) a wife pension under Part 2.4 of the Social Security Act 1991 ; c) a carer payment under Part 2.5 of the Social Security Act 1991 ; d) a pension under Part II of the Veterans' Entitlements Act 1986 payable to a veteran; e) a pension under Part IV of the Veterans' Entitlements Act 1986 payable to a member of the Forces or a member of a Peacekeeping Force; f) an invalidity service pension under Division 4 of Part III of the Veterans' Entitlements Act 1986; g) a partner service pension under Division 5 of Part III of the Veterans' Entitlements Act 1986 ; h) a pension under Part II of the Veterans' Entitlements Act 1986 payable to the widow or widower of a deceased veteran; i) a pension under Part IV of the Veterans' Entitlements Act 1986 payable to the widow or widower of a deceased member of the Forces or the widow or widower of a deceased member of a Peacekeeping Force; j) income support supplement under Part IIIA of the Veterans' Entitlements Act 1986; k) Defence Force Income Support Allowance under Part VIIAB of the Veterans' Entitlements Act 1986 ; l) a Special Rate Disability Pension under Part 6 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004 ; m) a payment of compensation under section 68, 71 or 75 of the Military Rehabilitation and Compensation Act 2004 ; n) a payment of the weekly amount mentioned in paragraph 234(1)(b) of the Military Rehabilitation and Compensation Act 2004 (including a reduced weekly amount because of a choice under section 236 of that Act) or of a lump sum mentioned in subsection 236(5) of that Act; to the extent to which the payment: is exempt from income tax; and a) is not a payment by way of bereavement payment, pharmaceutical allowance, rent assistance, language, literacy and numeracy supplement, remote area allowance or energy supplement; and b) if the payment is a payment under the Social Security Act 1991 —does not include tax-exempt pension supplement (within the meaning of subsection 20A(6) of that Act); and c) if the payment is a payment under the Veterans' Entitlements Act 1986 —does not include tax-exempt pension supplement (within the meaning of subsection 5GA(5) of that Act). In your circumstance, the payments you receive under section 24, Part II, of the Veterans' Entitlement Act 1986 are listed as a component of adjusted taxable income. As such while we acknowledge that the payments are exempt from income tax, they must be included in your income tax returns at the required IT3 label.