ATO Interpretative Decision
ATO ID 2001/551
Income Tax
Periodical personal injury compensation paid to Defence Force members in lieu of exempt deployment allowance arising from injuries sustained while on eligible duty in a warlike situationFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the periodical compensation received by the taxpayer in lieu of the exempt deployment allowance they were receiving for eligible duty in a warlike situation assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No, the periodical compensation received by the taxpayer in lieu of the exempt deployment allowance they were receiving for eligible duty in a warlike situation is not assessable income under section 6-5 of the ITAA 1997.
Facts
The taxpayer is a member of the Australian Army. The taxpayer was injured while performing certain overseas duty in a warlike situation and returned to an Australian hospital for medical treatment. At the time of the accident there was a certificate in force issued by the Chief of the Defence Force which exempted the taxpayer's pay and allowances from tax. As a result of the injury the taxpayer ceased to receive the deployment allowance and received periodical compensation for loss of that allowance.
Reasons for Decision
Division 6 of the ITAA 1997 provides that ordinary income is assessable income unless it is exempt income.
Section 23AD(1) of the Income Tax Assessment Act 1936 (ITAA 1936) specifically exempts the pay and allowances of members of the Defence Force earned while performing certain overseas duty. As periodical compensation is not 'pay and allowances', it is not exempt under this provision.
The Assistant Treasurer announced on 1 August 2001 a proposed amendment to the taxation law to exempt payments to Defence Force members to compensate for the loss of deployment allowance where the allowance ceases to be paid as a result of injuries sustained during service in a warlike situation. The amendment applies to 1996-97 and later years of income.
The Commissioner will exercise his administrative powers to give immediate effect to the Government's announcement. As a consequence, compensation paid to Defence Force members for loss of exempt deployment allowance, where the allowance ceases to be paid as a result of injuries sustained during service in a warlike situation, is treated as exempt income.
If a taxpayer has included a compensation receipt for loss of an exempt deployment allowance in a return, they can seek to excise it, subject to the 4 year time limit for amended assessments set by subsection 170(3) of the ITAA 1936. For the 2000-01 and future income years, the time limit is 2 years if the taxpayer is a shorter period of review taxpayer.
The taxpayer's periodical compensation for the loss of the exempt deployment allowance is therefore exempt. Subject to the statutory time limits, the taxpayer will be able to excise any such amounts that have been assessed in previous years.
Date of decision: 5 October 2001
Legislative References:
Income Tax Assessment Act 1936
section 23AD
subsection 170(3)
Division 6
section 6-5 Related ATO Interpretative Decisions
ATO ID 2001/550 ATO ID 2001/553
Other References:
Assistant Treasurer's Press Release No.34, 1 August 2001
Keywords
Amendment of assessments
Compensation income
Defence force awards and allowances
Defence force members
Exempt income
Periodical receipts
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 5 October 2001 | Original statement |
| 10 February 2006 | Archived |