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This edited version has been archived due to the length of time since original publication.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

Authorisation Number: 1012937648010

Date of advice: 15 January 2016

Ruling

Subject: Assessable income

Question 1

Is your share of a lump sum paid to you as a result of a settlement for Court proceedings for unpaid rent assessable income?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You own a rental property.

Your tenants failed to pay rent for some time.

You initiated Court proceedings against the tenants in respect of unpaid rent.

Consent orders were made by the court in which the defendants were required to pay a sum of in the 20XX financial year.

Upon payment a Notice of Discontinuance was to be filed in relation to the legal proceedings

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

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:

Payment of rent is income according to ordinary concepts and is 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).

Taxation Determination TD 93/58 explains the circumstances in which a lump sum compensation/settlement payment is assessable, and states that such a payment is assessable income:

In your case, the payment is compensation for loss of income from unpaid rent which we consider to be ordinary income and is included in assessable income under section 6-5 of the ITAA 1997.


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