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Ruling

Subject: lump sum payment in arrears

Question

Are you entitled to the lump sum in arrears tax offset for the arrears of incapacity payments you received?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You received an arrears of incapacity payments.

The payment related to previous income years.

The amount was paid to you in the current financial year.

The lump sum payment will represent more than 10% of your taxable income for the current financial year.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 159ZR and

Tax Administration Act 1953 Section 12-120 of Schedule 1.

Reasons for decision

Section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936) allows a lump sum payment in arrears tax offset where your assessable income in a year of income includes one or more eligible lump sums, and the total arrears amount is not less than 10% of the amount remaining after deducting that total arrears amount from the normal taxable income of the current year.

Eligible income is defined in subsection 159ZR(1) of the ITAA 1936 to mean certain specified types of income. Paragraph (c) of the definition includes payments covered by section 12-80 or section 12-120 in Schedule 1 to the Taxation Administration Act 1953 (TAA). Section 12-120 in Schedule 1 to the TAA refers to a payment that is: 

In your case, the payment you received was in respect of your incapacity to work, was calculated at a periodical rate and was not paid under an insurance policy. This payment will represent more than 10% of your taxable income for the 2011-12 financial year and is considered an eligible payment in accordance with subsection 159ZR(1) of the ITAA 1936. Therefore, you are entitled to a lump sum in arrears tax offset in the 2011-12 financial year under section 159ZRA of the ITAA 1936.

Additional information

A lump sum payment in arrears should be shown at label 24, 'other income' in the supplementary section of the tax return.

The Australian Taxation Office will calculate the lump sum payment in arrears tax offset for you. You must include a statement from the entity paying the lump sum payment with your tax return and show the financial years involved and the amount that accrued for each financial year.

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