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Edited version of private advice
Authorisation Number: 1051727839584
Date of advice: 29 July 2020
Ruling
Subject: Income - lump sum - TPD benefits
Question 1
Is the capital gain you made on receipt of the Total and Permanent Disability benefits disregarded?
Answer
Yes. Capital gains tax (CGT) event C2 happened when the insurer made the payment to you under the policy. You made a capital gain at that time. However, a capital gain you make from a CGT event relating directly to compensation you receive for any injury you suffered personally is disregarded.
Question 2
Is the separate interest payment paid to you by the insurer included in your assessable income?
Answer
Yes. Your assessable income includes income according to ordinary concepts, which is called ordinary income. Interest, or amounts received that are in the nature of interest, are ordinary income. As such, the interest amount you received from the insurer is assessable income in the financial year it was received.
This ruling applies for the following period
Financial year ended 30 June 20XX
The scheme commenced on
1 July 20XX
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You made several applications for 'own occupation' total and permanent disablement (TPD) cover.
The insurers accepted your applications and you were listed as the policy owner and life insured with the policies being held outside of superannuation.
You were diagnosed by a certified medial practitioner as suffering from an injury/condition that prevented you from being able to perform your work duties.
Your legal representative lodged the TPD claims on your behalf with the insurers.
The insurers completed their assessments and advised that you had satisfied the relevant TPD definitions and your claims had been accepted.
You received lump sum TPD benefit payments which represented the full payment of the benefit and in accordance with the policy terms and conditions the insurers cancelled your policies.
You received an additional amount for interest.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 section 104-25
Income Tax Assessment Act 1997 paragraph108-5(1)(b)
Income Tax Assessment Act 1997 section 118-37
Income Tax Assessment Act 1997 subparagraph 118-37(1)(a)(ii)
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