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Edited version of your private ruling
Authorisation Number: 1012384744921
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Ruling
Subject: Taxation of overseas compensation payments
Question 1:
Is a compensation payment assessable from Country A Accident Compensation Commission (ACC)?
Answer:
No
Are compensation payments received by the ACC and made to the children assessable?
Answer:
Yes
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
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.
Person A and their children reside in Australia and are Australian residents for tax purposes.
The children each receive a weekly gross payment. This payment is calculated as a percentage of a person's weekly earnings.
The payments are in relation to a dependency claim made and are in recognition of the children's dependency on their deceased parent.
The payments are deposited in an overseas bank account that is in the name of their parent and are then transferred to the children's individual Australian bank accounts. None of this money has been spent.
The children will receive the payments until the latter of them turning 18 or finishing full time study.
The children are full time students and do not have a tax file number. They have no other income.
Relevant legislative provisions
Income Tax Assessment Act 1936 Division 6AA of Part III
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 subsection 6-5(2)
Reasons for decision
Ordinary income is income according to ordinary concepts (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)).
The courts have identified a number of factors which indicate whether an amount has the character of income according to ordinary concepts. A frequent characteristic of income receipts is an element of periodicity, recurrence or regularity (FCT v. Dixon (1952) 86 CLR 540; (1952) 10 ATD 82).
One or more of the following characteristics will combine with periodicity to give an amount an income nature:
· it is made in substitution of income
· it is made to provide financial support, for example, as an income supplement
· it is received in circumstances where the recipient has an expectation of receiving the payment on a regular basis so that the recipient is able to depend upon the payment for his or her regular expenditure.
Taxation Determination TD 92/133 deals with the application of Division 6AA of Income Tax Assessment Act 1936 to weekly compensation payments made under workers' compensation legislation to a dependant child of a deceased person. TD 92/133 states that the weekly compensation payments are considered to be employment income; however it is excepted assessable income and is taxed at normal marginal rates.
The dependant weekly benefit is therefore ordinary income, and so is included in the children's assessable income under subsection 6-1(1) of ITAA 1997.
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