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This edited version has been archived due to the length of time since original publication.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.

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Edited version of private advice

Authorisation Number: 1012621251363

Ruling

Subject: Mining Compensation

Question 1

Will the payments under the Agreements be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Will the payment under the Agreements be disregarded as a capital gain under section 118-37 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Income year ended 30 June 2012

Income year ended 30 June 2013

Income year ended 30 June 2014

Income year ended 30 June 2015

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You have entered into a compensation agreement under the Environmental Protection Act 1994 with a company to compensate you for the effects caused by their activities on adjacent land.

The company holds the Environment Authority over the property. Your dwelling/residence is deemed to be a sensitive place.

The Agreements provides that you have been compensated for the following impacts caused by the operations of the company:

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)

Reasons for decision

Taxation Ruling TR 95/35 provides the Commissioner's view on the taxation implications of compensation receipts. Accordingly to determine the tax treatment of a compensation payment a "look through" approach is adopted to identify the relevant asset to which the compensation relates.

Having regard to your full circumstances, it is accepted that you have been compensated primarily for surrendering your right to seek compensation for noise, dust, odour, light and vibration emissions caused by the operations of the company.

Consequently the compensation payments will not be assessable income under section 6-5 of the ITAA 1997 as the payments do not relate to an underlying asset, but rather relates to a disposal by the taxpayer of the right to seek compensation.

In this instance the surrendered right to seek compensation relates to a personal wrong, injury or illness which you have suffered personally and with be therefore be disregarded under paragraph 118-37(1)(b) of the ITAA 1997.

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