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Edited version of private ruling
Authorisation Number: 1011622361794
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Ruling
Subject: Income- Repaid income
1. Are you entitled to a deduction for the repayment of income to an entity?
No.
2. Are you entitled to amend your income tax assessment to remove payment A from your assessable income?
Yes.
This ruling applies for the following period
Year ended 30 June 2008
Year ended 30 June 2010
The scheme commenced on
1 July 2007
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
· a private ruling application
· copies of payment summaries
· letters and invoices from relevant entities.
You were an employee.
You were suffering from medical condition and as a result you were terminated from your employment.
You received payment A from your employer.
You declared payment A in an earlier income year.
You made an application to an entity to receive another payment.
You received payment B from the entity in another income year.
The payment B was calculated in accordance with relevant legislative provisions. The payment is based on the age and salary.
Under the relevant legislative provisions you can only receive one payment either payment A or payment B.
You were required to repay payment A as a result of receiving payment B.
You repaid payment A in another income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-5(2)
Income Tax Assessment Act 1997 subsection 6-10(2)
Income Tax Assessment Act 1997 subsection 6-10(4)
Income Tax Assessment Act 1997 section 6-23
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 59-30.
Income Tax Assessment Act 1997 subsection 59-30(3).
Reasons for decision
Assessable income
Division 6 of the Income Tax Assessment Act 1997 (ITAA 1997) defines assessable income in broad terms. It includes income according to ordinary concepts (ordinary income - subsection 6-5(2) of the ITAA 1997) and other amounts which the ITAA 1997 states are included as assessable income (statutory income - subsection 6-10(4) of the ITAA 1997).
Subsection 6-10(2) of the ITAA 1997 provides that an amount is statutory income if it is not ordinary income but is included in assessable income by a provision of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997.
Division 10 of the ITAA 1997 lists the particular kinds of assessable income. Superannuation benefits are listed in Division 10 of the ITAA 1997 as included in assessable income under Divisions 301 to 306 of the ITAA 1997.
Lump sum payments from superannuation funds are subject to special tax treatment and are usually separated into a taxable and non taxable component. The taxable component is included in the taxpayer's assessable income for the year the payment was received (Division 301 of the ITAA 1997).
In your case, you were in receipt of payment B which is statutory income and is included in your assessable income.
Non-assessable non-exempt income
An amount of ordinary income or statutory income is non-assessable non-exempt income if a provision of the ITAA 1997 or another Commonwealth law states that it is not assessable income and is not exempt income (section 6-23 of the ITAA 1997). A summary list of provisions about non-assessable non-exempt income is contained in Subdivision 11-B of the ITAA 1997. Included in this list is section 59-30 of the ITAA 1997 which deals with repayable amounts.
Under section 59-30 of the ITAA 1997, an amount you receive is not treated as assessable income for an income year if:
(a) you must repay it
(b) you must repay it in a later income year, and
(c) the repayment is not deductible in any income year.
It is irrelevant whether the amount repaid had originally been received as part of a larger amount, or whether the obligation to repay arose before or after the amount was received.
Subsection 59-30(3) of the ITAA 1997 states this section does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury suffered in your occupation.
You received payment B which contained taxable components. A review of provision under which the payment was made indicates payments were calculated based on your age and salary. The payments did not refer to the nature or the extent of the injury. Therefore, the payments are not considered payment for injury suffered in the work place but payment made for loss of employment. Payment B is not a payment that you are required to repay. Rather, part of payment B was used to repay payment A which was previously been returned as assessable income. The repaid payment A amount is non-assessable non-exempt income under section 59-30 of the ITAA 1997 and should be removed from your assessable income in the previous income year.
Deduction allowable
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236 the High Court stated that:
For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.
In your case, payment A was an outgoing incurred by an entity in making payment to you in an earlier income year. Under the provisions which made the payments, you were only entitled to one payment either payment A or payment B. The receiving of payment B did not arise as a result of receiving payment A but was made to satisfy the provision under which it was paid. It is considered that the repayment of payment A is not an outgoing incurred in gaining or producing your assessable income. Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the amount repaid. The relevant provision which applies in your situation is section 59-30 of the ITAA 1997 as noted above.
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