Income tax: assessable income: payments received under the Redress Scheme for former residents of State care in Western Australia
Please note that the PDF version is the authorised version of this ruling.
|What this Ruling is about|
|Date of effect|
|NOT LEGALLY BINDING SECTION:|
|Appendix 1: Explanation|
|Appendix 2: Detailed contents list|
This publication provides you with the following level of protection:
This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953.
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, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are 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.
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.
- section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997);
- section 104-25 of the ITAA 1997; and
- paragraph 118-37(1)(b) of the ITAA 1997.
All 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 a payment under the Western Australian Government's Redress Scheme for former residents of State care in Western Australia.
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 13 to 23 of this Ruling.
- this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and
- this Ruling may be withdrawn or modified.
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:
- Commonwealth Copyright Administration
- Attorney General's Department
- Robert Garran Offices
- National Circuit
- Barton ACT 2600
- or posted at: http://www.ag.gov.au/cca
Date of effect
9. The Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling. Furthermore, the Ruling only applies to the extent that:
- it is not later withdrawn by notice in the Gazette; or
- the relevant provisions are not amended.
10. If this Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)).
- the income year or other period to which the rulings relate has not begun; and
- the scheme to which the rulings relate has not begun to be carried out.
- an application for Class Ruling from the Department of Communities (Western Australia);
- information obtained from the internet website address: www.redress.wa.gov.au;
- correspondence received via email from the applicant dated 20 February 2008; and
- draft Deed of Settlement and Release received on 27 March 2008.
14. The Redress Scheme for former residents of State care in Western Australia was announced on 17 December 2007 by the Western Australian Government and provides a one-off payment to eligible former residents of State care in Western Australia to acknowledge the impact of past abuse and neglect. The scheme is known as Redress WA.
- are over 18 years of age or are the guardian of a person aged over 18 years of age with a legal disability (for example an intellectual disability); and
- experienced abuse and or neglect as children in State care in Western Australia, either institutional or non-institutional (including Child Migrants and Stolen Generation children) prior to 1 March 2006.
- foster homes or other residential settings; and
- institutional settings such as group homes, hostels or orphanages.
- a payment of compensation for personal damages from a Court; or
- a settlement from the Western Australian State Government;
as compensation for the types of abuse and injuries described in the application for Redress WA, are not eligible to apply.
21. Individuals who are assessed as meeting the eligibility criteria will be offered a payment based on the severity and impact of the abuse suffered. Redress WA Assessors will assess claims and the amount offered will comprise:
- a payment of up to $10,000 if the available evidence shows a reasonable likelihood that the applicant experienced abuse and/or neglect while in State care in Western Australia; or
- a payment of up to $80,000 if medical and/or psychological evidence is provided that the applicant was physically, sexually, emotionally, or psychologically abused and/or neglected while in State care in Western Australia.
22. The payment will be made subject to the applicant signing a 'Deed of Settlement and Release' intended to indemnify the Minister and the State of Western Australia from any current or future legal claims arising in relation to the alleged abuse.
Section 6-5 - income according to ordinary concepts
Capital gains tax
Commissioner of Taxation
21 May 2008
Appendix 1 - Explanation
|This Appendix is provided as information to help you understand how the Commissioner's view has been reached. It does not form part of the binding public ruling.|
Section 6-5 - income according to ordinary concepts
- it is income in the ordinary sense of the word (ordinary income); or
- it is not ordinary income but through the operation of the legislation it is included in assessable income (statutory income).
29. The legislation does not provide specific guidance on the meaning of ordinary income. However, a substantial body of case law exists which identifies likely characteristics. Amounts that are periodical, regular or recurrent and relied upon by the recipient for their regular expenditure are likely to be ordinary income, as are amounts that are the product of any employment of, or services rendered by, the recipient (Federal Commissioner of Taxation v. Rowe (1995) 60 FCR 99; 95 ATC 4691; (1995) 31 ATR 392).
30. Payments under Redress WA 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.
Capital gains tax
32. 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.
34. The entitlement to receive a payment under Redress WA 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:
- making an application; and
- satisfying the eligibility criteria.
35. CGT event C2 under section 104-25 happens when the entitlement to receive a payment under Redress WA comes to an end which is when the entitlement is satisfied. This would be the point in time when the Deed of Settlement and Release is signed.
36. However, any capital gain or capital loss made as a result of 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.
37. 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.
38. A payment under Redress WA is made to compensate eligible former residents of State care in Western Australia for the impact of past institutional abuse and neglect experienced while they were residents in State care.
39. 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.
Appendix 2 - Detailed contents list
|What this Ruling is about||1|
|Class of entities||3|
|Date of effect||8|
|Section 6-5 - income according to ordinary concepts||24|
|Capital gains tax||25|
|Appendix 1 - Explanation||27|
|Section 6-5 - income according to ordinary concepts||27|
|Capital gains tax||32|
|Appendix 2 - Detailed contents list||40|
Not previously issued as a draft
capital gains tax
CGT events C1-C3 - end of a CGT asset
statutory compensation scheme
compensation for injury
Federal Commissioner of Taxation v. Rowe
(1995) 60 FCR 99
95 ATC 4691
(1995) 31 ATR 392