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Edited version of your private ruling
Authorisation Number: 1012311706624
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Ruling
Subject: Income - travel insurance claim
Question
Are the payments you received under a travel insurance policy for loss of income assessable income?
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 are a named party on a comprehensive travel insurance policy.
You sustained an injury whilst on holidays and made a claim against the policy.
In accordance with the terms of the policy, the insurance company paid you a loss of income benefit, which was calculated on a capped weekly amount, subject to a maximum limit.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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 three 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:
· are earned
· are expected
· are relied upon
· have an element of periodicity, recurrence or regularity
Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997.
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; (1952) 5 ATR 443; 10 ATD 82). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts ( FC of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142; Tinkler v. FC of T (1979) 10 ATR 411; 79 ATC 4641; Case Y47 (1991) 22 ATR 3422; 91 ATC 433).
In your case, as a result of an injury sustained whilst on holidays you were unable to perform your normal or suitable alternative work when you returned home. The insurance company paid you a loss of income benefit, which was calculated on a capped weekly amount, subject to a maximum limit.
These payments are considered to be ordinary income as they acquire the character of the salary and wages for which they are substituted. The payments are assessable under subsection 6-5(2) of the ITAA 1997.
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