ATO Interpretative Decision

ATO ID 2002/384 (Withdrawn)

Income Tax

Assessability of an ex gratia payment made by a foreign government to an eligible veteran of a foreign Merchant Navy
FOI status: may be released
  • This ATO ID is withdrawn. The view expressed in this ATO ID is current and represents a straight application of the law, applying the decision of the High Court in FC of T v. Dixon (1952) 86 CLR 540, and does not contain an interpretative decision.
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Status of this decision: Decision withdrawn 19 April 2018.
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Is the taxpayer required to include an ex gratia lump sum payment made by a foreign government in their assessable income, under subsection 6-5(3) or subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?


No. The taxpayer is not required to include an ex gratia lump sum payment made by a foreign government in their assessable income, under subsection 6-5(3) or subsection 6-10(4) of the ITAA 1997.


The taxpayer is a resident of Australia for tax purposes.

The taxpayer served in the merchant navy of a foreign country during World War II.

The taxpayer received an ex gratia lump sum payment from the foreign Government. The lump sum payment is tax-free in the foreign country.

Members of the armed forces of the foreign country were entitled to significant benefits after the war. The taxpayer was not entitled to these benefits. The lump sum received from the foreign government was paid in recognition of the fact that these benefits were not available to the taxpayer. The amount of the payment also depended on the length of the taxpayer's service in the merchant navy.

Reasons for Decision

Subsection 6-5(2) of the 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.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with allowances and benefits in relation to employment or rendering services.

The lump sum payment is not income according to ordinary concepts. It does not satisfy any of the established tests, even though it has a connection to an employment of the taxpayers who have received it. For an amount to be included in a taxpayer's assessable income under paragraph 26(e) of the ITAA 1936 it must be received 'in respect of, or for or in relation directly or indirectly to, any employment or services rendered by him'.

In order for an amount to be assessable under paragraph 26(e) the majority of the High Court in FC of T v. Dixon (1952) 86 CLR 540 held that there must be an existing or a contemporaneous existence of an employee and employer relationship. The taxpayer was not a employee of the foreign Merchant navy at the time they received the lump sum payment and therefore there is no employee and employer relationship.

Therefore the taxpayer is not assessable, under either subsection 6-5(2) or subsection 6-10(4) of the ITAA 1997, on the ex gratia lump sum payment.

( Note : The issue of whether this payment is subject to capital gains tax is dealt with in the Related ATO Interpretative Decision AT ID 2002/385)

Date of decision:  20 September 2001

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   paragraph 26(e)

Income Tax Assessment Act 1997
   subsection 6-5(2)
   section 6-10
   subsection 6-10(4)
   section 10-5

Case References:
Federal Commissioner of v. Dixon
   86 CLR 540

Related ATO Interpretative Decisions
ATO ID 2002/385

Exempt income
Compensation income
Veterans payments

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 March 2002

ISSN: 1445-2782

  Date: Version:
  20 September 2001 Original statement
You are here 19 April 2018 Withdrawn