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Edited version of private ruling

Authorisation Number: 1011819729626

Ruling

Subject: Income -divorce settlement lump sum payment

Question

Is the lump sum payment received assessable income?

Answer: No.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts

You were previously married.

Under a divorce agreement between you and your former spouse you were entitled to receive a lump sum payment.

The lump sum payment was made from your former spouse's personal cheque account.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(1).
Income Tax Assessment Act 1997 subsection 6-5(2).
Income Tax Assessment Act 1997 subsection 6-10(2).
Income Tax Assessment Act 1997 section 10-5. 

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.

Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

You do not have an employment relationship with your former spouse and therefore you did not receive the payment in the capacity of an employee. Rather the lump sum relates to a divorce settlement between you and your former spouse. The payment is also a one-off payment and thus does not have an element of recurrence or regularity. Although the payment can be said to be expected, and perhaps relied upon, this expectation arises from the divorce settlement between you and your former spouse, rather than from any services performed. Therefore, the lump sum payment is not ordinary income and is not assessable under subsection 6-5(2) of the ITAA 1997

Statutory income is not ordinary income but is included in assessable income by a specific provision in the tax legislation (subsection 6-10(2) of the ITAA 1997). 

Section 10-5 of the ITAA 1997 lists those provisions about assessable income.

In your case, there is no other provision listed under section 10-5 of the ITAA 1997 which applies to the lump sum amount you received and the lump sum payment is therefore not considered to be statutory income.

Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary income and is not statutory income, it is not assessable income. Therefore, the lump sum is not assessable income as the payment received is private in nature and is not required to be included in your tax return.

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