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This edited version has been archived due to the length of time since original publication.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: 1051237537871

Date of advice: 20 June 2017

Ruling

Subject: Income protection payment

Question and answer

Is the lump sum amount received by you to replace monthly income protection payments assessable income?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2016

The scheme commenced on:

1 July 2015

Relevant facts and circumstances

You were receiving monthly income protection payments.

You agreed to receive a lump sum payment in lieu of the monthly payments.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 6-5(2)

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Based on case law, it can be said that ordinary income generally includes receipts that:

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).

You agreed to receive a lump sum payment in lieu of monthly income protection payments.

The income protection payment is compensation relating to loss of income and is assessable.

This payment forms part of your assessable income in the year it is derived and must be included in your tax return.

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