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Edited version of your written advice

Authorisation Number: 1051284600883

Date of advice: 26 September 2017

Ruling

Subject: Maturity of a foreign life assurance policy

Question and Answer

Does the lump sum payment you received need to be included in your assessable income in the year that it is received?

Yes

This ruling applies for the following period

Financial year ended 30 June 2017

The scheme commences on

1 July 2016

Relevant facts and circumstances

You were granted an amount at a Worker’s Compensation Arbitration.

The order made by the arbitration service stated:

Relevant legislative provisions

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

Section 54-45 of the Income Tax Assessment Act 1997

Subsection118-37(1)(b) of the Income Tax Assessment Act 1997

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.

An amount paid to compensate for loss generally acquires the character of that for which it is substituted (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; (1952) 10 ATD 82). Compensation payments that substitute for income have been held by the courts to be income under ordinary concepts (Federal Commissioner of Taxation v. Inkster (1989) 24 FCR 53; 89 ATC 5142, (1989) 20 ATR 1516)). The order for weekly payments of compensation retains the characteristics of ordinary income even though it was paid as a lump sum.

In your case, the arbitration service gave direction to determine your entitlement to compensation for injuries resulting in total incapacity for work. You have been paid a lump sum payment which represents a replacement of your employment income for the period from DD/MM/YYYY.

The lump sum compensation amount you received is a payment for loss of income and is therefore, fully assessable when received.

As the amount you received is not considered to be a payment for personal injury paragraph 118-37(1)(b) does not apply.

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