ATO Interpretative Decision

ATO ID 2001/403

Income Tax

Assessability of periodical compensation payments
FOI status: may be released

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Please note: This ATO ID was withdrawn in error on 14 December 2007. This error was corrected on 18 December 2007 and this ATO ID has been current since its release

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Issue

Are weekly compensation payments received by the taxpayer after retirement age to replace income, assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, weekly compensation payments received by the taxpayer after retirement age to replace income are assessable under section 6-5 of the ITAA 1997.

Facts

The taxpayer was injured at work.

The taxpayer's employer paid compensation for loss of wages for a period until the insurer assumed the liability for the payments.

The insurer continued to pay compensation to the taxpayer until the taxpayer reached retirement age. The taxpayer then received a determination from the insurer which set a weekly rate of payment that the taxpayer will receive indefinitely.

Reasons for Decision

Subsection 6-5(1) of the ITAA 1997 provides that a taxpayer's assessable income includes income according to ordinary concepts, which is called ordinary income.

Income according to ordinary concepts has been held by the courts to include income from the rendering of personal services, income from property and income from carrying on of a business.

An amount paid to compensate for loss generally acquires the character of that for which it is substituted (FC of T v. Dixon (1952) 86 CLR 540). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts (FC of T v. Inkster 89 ATC 5142, 20 ATR 1516; Tinkler v. FC of T 79 ATC 4641, 10 ATR 411; Case Y47 91 ATC 433, 22 ATR 3422).

Although the taxpayer has reached retirement age, the insurer continues to make periodical payments to the taxpayer to compensate for the loss of earnings. These payments will continue to be characterised as income according to ordinary concepts. The compensation payments are therefore assessable as ordinary income under section 6-5 of the ITAA 1997.

Amendment History

Date of Amendment	Part	Comment
9 September 2016	Case References	Insert authorised report and medium neutral case references

Date of decision: 22 June 2001

Legislative References:
Income Tax Assessment Act 1997
section 6-5

Case References:
FC of T v. Dixon
(1952) 86 CLR 540
[1952] HCA 65

FC of T v. Inkster
   (1989) 24 FCR 53
   [1989] FCA 423
   89 ATC 5142
   (1989) 20 ATR 1516

Tinkler v. FC of T
   [1979] FCA 88
   79 ATC 4641
   (1979) 10 ATR 411

Case Y47
91 ATC 433
(1991) 22 ATR 3422

Keywords
Workers compensation income
Compensation income
Income

Business Line: Small Business/Individual Taxpayers

Date of publication: 29 September 2001
Date reviewed: 8 November 2013

ISSN: 1445-2782

history

	Date:	Version:
	22 June 2001	Original statement
You are here	9 September 2016	Updated statement
	9 June 2017	Archived

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