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Edited version of your written advice

Authorisation Number: 1012843135973

Date of advice: 23 July 2015

Ruling

Subject: Compensation payments

Question

Is a lump sum compensation payment for pain and suffering assessable income?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You launched a discrimination action against your employer.

The settlement of this complaint consisted of a targeted separation package, unpaid leave entitlements, and an ex gratia payment for pain and suffering.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Compensation lump sum payment - pain and suffering

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income).

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:

You launched a claim for discrimination against your employer. You have now received a settlement which includes a component for pain and suffering. The payment was not earned by you as it does not relate to services performed. The payment is also a one off payment and thus it does not have an element of recurrence or regularity. Although the payment can be said to be expected, and perhaps relied upon, this expectation arises from the pain and suffering required resulting from the discrimination, rather than from a relationship to personal services performed.

Accordingly, the lump sum payment is not ordinary income and is therefore, not assessable under section 6-5 of the ITAA 1997.

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