Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012423197844

Ruling

Subject: Compensation payment

Question 1

Are payments you receive for compensation taxable income?

Answer

Yes.

Question 2

Is the interest earned from a trust held on your behalf taxable income?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commences on

1 July 211

Relevant facts and circumstances

You are an Australian resident for tax purposes and under the age of 18.

You receive fortnightly compensation payments.

You were also paid a lump sum compensation payment. Theses funds are held in trust on your behalf until you reach 18 years of age.

You have provided a copy of your statement of income from the trust.

You have a part-time job.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 6-5(4)

Income Tax Assessment Act 1936 Subsection 100(1)

Income Tax Assessment Act 1936 Subsection 100(2)

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer shall include the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the taxation year. 

Compensation payments made workers compensation legislation

Taxation Determination TD 92/133 states that compensation paid under subsection 17(5) of the Commonwealth Employees Rehabilitation and Compensation Act 1988 (CERCA), now the SRCA 1988, is assessable to the child of the deceased employee and not the child's parent or guardian. Even if the parent actually receives the payments, they are a constructive receipt of the child and therefore deemed to be derived by the child in accordance with subsection 6-5(4) of the ITAA 1997.

TD 92/133 considers that such weekly compensation payments are received in the form of a pension and are therefore deemed as salary and wages. These payments are taxed at normal individual resident rates.

Interest derived from the trust

If a beneficiary is presently entitled to a share of the trust income and they are under 18 years of age, the trustee is assessed and is liable to pay tax on that income as if it were the income of an individual. A beneficiary receiving income from other sources in addition to the trust income is assessed on the total income in their personal tax return. A credit is allowed in the individual's return for the amount of tax paid or payable by the trustee on the trust income

As you receive income from other sources, you will also need to include the net interest income derived by the trust in your personal income tax return. Any tax paid or payable by the trustee can be included in your return as a credit.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).