Private ruling: Compensation payment
Published: July 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the lump sum compensation payment received for providing gratuitous domestic assistance assessable income? | A1: Yes

Relevant facts and circumstances: Your spouse received a workplace injury that has resulted in you providing care assistance to your spouse around the home. Your spouse lodged a claim for domestic assistance under the Worker's Compensation Act 1987 . The claim was arbitrated by the Workers Compensation Commission and you were awarded a lump sum payment for lost income and foregoing of full-time employment as a result of providing care assistance to your spouse for the periods stated in the claim. You have received the payment in this income year and there are no further ongoing payments to be made.

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

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or 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, 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 ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; ATD 82). Compensation payments which substitute income have been held by the courts to be income according to ordinary concepts ( FC of T v. Inkster 89 ATC 5142; (1989) 20 ATR 1516 and Tinkler v. FC of T 79 ATC 4641; (1979) 10 ATR 411. In your case, you were awarded, after arbitration, a lump sum payment for gratuitous domestic assistance under the Workers Compensation Act 1987 as you provided past care to your incapacitated spouse. As the amounts received are payments received for personal services rendered they are income according to ordinary concepts. We do not consider that the fact you are related to the person you were paid to care for changes the essential character of the payment. The payment was made to an approved person to provide personal care to an injured worker in respect of a compensable disability. The lump sum payment will be assessable income in the year it was received under section 6-5 of the ITAA 1997.