Class Ruling CR 2011/22
Date of effect: 29 January 2010

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt with in this Ruling are: All subsequent legislative references in this ruling are to the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies is individuals who receive an ex gratia payment from the South Australian Government as a result of experiencing sexual abuse as children while they were residents in State care. Qualifications 4. The Commissioner makes this ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 16 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is individuals who receive an ex gratia payment from the South Australian Government as a result of experiencing sexual abuse as children while they were residents in State care. | Qualifications: 4. The Commissioner makes this ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 16 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 8. This Ruling applies from 29 January 2010 to 30 June 2015. The Ruling continues to apply after 30 June 2015 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 9. The following description of the scheme is based on information provided by the applicant. 10. On 29 January 2010 the South Australian Government announced it would be providing a one-off ex gratia payment to eligible former residents in State care in South Australia who experienced sexual abuse, to acknowledge their pain and suffering and to help their recovery. 11. Applicants for the ex gratia payment are limited to individuals who satisfy the eligibility criteria, including those who 12. Individuals who are assessed as meeting the eligibility criteria will be offered a payment based on the severity of the sexual abuse. A person who establishes that they have suffered serious and lasting harm from sexual abuse whilst in State care may receive up to $30,000. In exceptional circumstances, where extreme sexual abuse has occurred, a total of up to $50,000 may be granted. 13. The Attorney-General decides who may be offered a payment, the amount of money the person is offered and whether there are any conditions attached to receiving the money. 14. The payment will be made subject to the applicant signing a Deed of Settlement and Release, indemnifying the Minister for Families and Communities and the State of South Australia from any past, current or future claims arising from abuse of any kind whilst in State care. 15. The payments are to be made by the Attorney-General of South Australia under the Victims of Crime Act 2001 from the Victims of Crime Fund set up under that Act. 16. There is currently no closing date for applications, however, the Attorney-General of South Australia may announce a closing date in the future. | Section 6-5 - income according to ordinary concepts: 17. A lump sum payment made by the South Australian Government to former residents in State care in South Australia who suffered sexual abuse is not assessable as ordinary income under section 6-5. | Capital gains tax: 18. Capital gains tax (CGT) event C2 under section 104-25 happens to the entitlement to receive a payment when the entitlement is satisfied. 19. Any capital gain or capital loss made as a result of receiving a payment is disregarded under paragraph 118-37(1)(b). Commissioner of Taxation 2 March 2011 | Section 6-5 - income according to ordinary concepts: 20. A payment is assessable income if: | Ordinary income: 21. Subsection 6-5(1) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). 22. The legislation does not provide specific guidance on the meaning of income according to ordinary concepts. However, a substantial body of case law exists which identifies likely characteristics. 23. In GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation , [1] the Full High Court stated: 24. Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, as are amounts that are the product in a real sense of any employment of, or services rendered by, the recipient. [2] Amounts paid in substitution for salary or wages foregone or lost may also be ordinary income. [3] 25. Ultimately, whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. [4] The whole of the circumstances must be considered [5] and the motive of the payer may be relevant to this consideration. [6] 26. Payments made under the scheme are one-off lump sum payments in the nature of compensation or settlement sums. They do not possess the characteristics of ordinary income. Therefore the payments will not be assessable as ordinary income. | Statutory income: 27. An amount that is not ordinary income may still be assessable income as a result of the operation of section 6-10 which includes statutory income in assessable income. 28. Payments made under the scheme are not assessable as statutory income under any of the provisions in Division 15 or Division 20. | Capital gains tax: 29. Statutory income includes a net capital gain calculated under section 102-5. In broad terms a net capital gain is the difference between a person's capital gains and capital losses for an income year. 30. Generally a capital gain or capital loss is made when a CGT event happens to a CGT asset. 31. The entitlement to receive a payment under the scheme is a CGT asset under section 108-5. The entitlement arises when an applicant has done everything necessary to be entitled to the payment including: 32. CGT event C2 under section 104-25 happens when the entitlement to receive a payment under the scheme comes to an end which is when the entitlement is satisfied. This is the point in time when the Deed of Settlement and Release is signed. 33. However, any capital gain or capital loss made from CGT event C2 is disregarded under paragraph 118-37(1)(b) when the CGT event relates directly to compensation or damages received for any wrong, injury or illness you suffer personally. 34. The treatment for CGT purposes of compensation receipts for personal wrong or injury is discussed in paragraphs 19 to 22 of Taxation Ruling TR 95 / 35 Income tax : capital gains : treatment of compensation receipts . In particular, paragraph 20 of TR 95/35 provides that CGT exemption is available if the taxpayer receives compensation in an undissected lump sum which relates wholly to the personal wrong or injury suffered by the taxpayer. 35. A lump sum payment made under the scheme is made to acknowledge the pain and suffering of eligible former residents of State care in South Australia who suffered sexual abuse while they were residents in State care, and to help their recovery. 36. Therefore, any capital gain or capital loss arising from the CGT event is disregarded under paragraph 118-37(1)(b) as it relates wholly to compensating individuals for personal wrong, injury or illness. 37. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: Section 6-5 - income according to ordinary concepts: 17. A lump sum payment made by the South Australian Government to former residents in State care in South Australia who suffered sexual abuse is not assessable as ordinary income under section 6-5. | Capital gains tax: 18. Capital gains tax (CGT) event C2 under section 104-25 happens to the entitlement to receive a payment when the entitlement is satisfied. 19. Any capital gain or capital loss made as a result of receiving a payment is disregarded under paragraph 118-37(1)(b). Commissioner of Taxation 2 March 2011


Appendix: Section 6-5 - income according to ordinary concepts: 20. A payment is assessable income if: | Ordinary income: 21. Subsection 6-5(1) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). 22. The legislation does not provide specific guidance on the meaning of income according to ordinary concepts. However, a substantial body of case law exists which identifies likely characteristics. 23. In GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation , [1] the Full High Court stated: 24. Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, as are amounts that are the product in a real sense of any employment of, or services rendered by, the recipient. [2] Amounts paid in substitution for salary or wages foregone or lost may also be ordinary income. [3] 25. Ultimately, whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. [4] The whole of the circumstances must be considered [5] and the motive of the payer may be relevant to this consideration. [6] 26. Payments made under the scheme are one-off lump sum payments in the nature of compensation or settlement sums. They do not possess the characteristics of ordinary income. Therefore the payments will not be assessable as ordinary income. | Statutory income: 27. An amount that is not ordinary income may still be assessable income as a result of the operation of section 6-10 which includes statutory income in assessable income. 28. Payments made under the scheme are not assessable as statutory income under any of the provisions in Division 15 or Division 20. | Capital gains tax: 29. Statutory income includes a net capital gain calculated under section 102-5. In broad terms a net capital gain is the difference between a person's capital gains and capital losses for an income year. 30. Generally a capital gain or capital loss is made when a CGT event happens to a CGT asset. 31. The entitlement to receive a payment under the scheme is a CGT asset under section 108-5. The entitlement arises when an applicant has done everything necessary to be entitled to the payment including: 32. CGT event C2 under section 104-25 happens when the entitlement to receive a payment under the scheme comes to an end which is when the entitlement is satisfied. This is the point in time when the Deed of Settlement and Release is signed. 33. However, any capital gain or capital loss made from CGT event C2 is disregarded under paragraph 118-37(1)(b) when the CGT event relates directly to compensation or damages received for any wrong, injury or illness you suffer personally. 34. The treatment for CGT purposes of compensation receipts for personal wrong or injury is discussed in paragraphs 19 to 22 of Taxation Ruling TR 95 / 35 Income tax : capital gains : treatment of compensation receipts . In particular, paragraph 20 of TR 95/35 provides that CGT exemption is available if the taxpayer receives compensation in an undissected lump sum which relates wholly to the personal wrong or injury suffered by the taxpayer. 35. A lump sum payment made under the scheme is made to acknowledge the pain and suffering of eligible former residents of State care in South Australia who suffered sexual abuse while they were residents in State care, and to help their recovery. 36. Therefore, any capital gain or capital loss arising from the CGT event is disregarded under paragraph 118-37(1)(b) as it relates wholly to compensating individuals for personal wrong, injury or illness.


What this Ruling is about | Appendix 2 - Detailed contents list | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business.


Related rulings: TR 95/35 IT 2424 TR 2006/10
Legislative references: ITAA 1997 ITAA 1997 6-5 ITAA 1997 6-10 ITAA 1997 Div 15 ITAA 1997 Div 20 ITAA 1997 102-5 ITAA 1997 104-25 ITAA 1997 108-5 ITAA 1997 118-37 ITAA 1997 118-37(1)(b) TAA 1953 Copyright Act 1968 Victims of Crime Act 2001
Case references: Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540 (1952) 10 ATD 82 (1952) 5 AITR 443
Subject references: income capital gains tax CGT events CGT exemptions CGT events C1-C3 - end of a CGT asset statutory compensation scheme compensation for injury compensation income