Edited version of private advice

Authorisation Number: 1052405411607

Date of advice: 05 June 2025

Ruling

Subject: Compensation payment - lump sum

Question 1

Is the lump sum compensation payment you received due to the death of your parent included in your assessable income?

Answer 1

No.

Question 2

Are the ongoing weekly compensation payments you will be receiving due to the death of your parent included in your assessable income?

Answer 2

Yes.

Question 3

If the answer to question 2 is yes, are the weekly compensation payments you will be receiving due to the death of your Parent 'excepted assessable income' under subsection 102AE(2) of the Income Tax Assessment Act 1936?

Answer 3

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

Your late parent suffered a work-related death.

For this reason, you have met the criteria for a Country A survivor's grant payment, as outlined in a letter addressed to you from the relevant Country A organisation (the organisation) dated mid-to-late 20XX (the letter).

The letter outlines that you have also met the criteria for ongoing weekly compensation payments from the organisation.

There are no stipulations or conditions you need to meet to receive these payments.

The start date for the ongoing weekly compensation payments is in mid-20XX, and you will be receiving these payments until you turn X years of age.

The start date for your entitlement to the Country A survivor's grant payment is also in mid-20XX.

In mid-20XX, you received the Country A survivor's grant payment of $X paid by the organisation.

The survivor's grant is not taxable in Country A.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 102AE(2)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 paragraph 118-37(1)(a)

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Summary

The lump sum compensation you received due to the death of your parent is neither ordinary or statutory income, and therefore is not required to be declared in your income tax return.

However, the ongoing weekly compensation payments you will be receiving due to the death of your parent have the characteristics of ordinary income and will be taxed at normal marginal tax rates rather than the tax rates for minors.

Detailed reasoning

The assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Ordinary income is income according to ordinary concepts which is not specifically defined in the legislation.

However, characteristics of ordinary income that have evolved from case law include receipts that:

•                are earned

•                are expected

•                are relied upon, and

•                have an element of periodicity, recurrence or regularity.

Payment for personal services, whether received in the capacity of an employee or otherwise in connection with employment or other personal services income is income according to ordinary concepts under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Similarly, any payment (for example compensation) to replace income is also considered to be income for ordinary concepts.

Where an amount of income is not ordinary income, it may be included in a taxpayer's assessable income under section 6-10 of the ITAA 1997. This income is called statutory income and is made assessable by a specific provision of the taxation legislation.

Section 10-5 of the ITAA 1997 lists those provisions.

Included in this list is section 102-5 of the ITAA 1997 which deals with capital gains tax.

Where an amount is not ordinary income or statutory income it is not assessable income, and you do not have to pay tax on it.

Lump sum compensation payment (survivors grant)

The lump sum compensation payment (survivors grant) you received due to the death of your father is not ordinary income under section 6-5 of the ITAA 1997. The payment is not a payment for personal services and does not have any of the characteristics of ordinary income.

Despite this, compensation payments may still be statutory income (under the Capital Gains Tax provisions) and assessable.

However, paragraph 118-37(1)(a) of the ITAA 1997 disregards a capital gain made where the amount relates to compensation or damages you receive for any wrong, injury or illness you or your relative suffers personally.

The term 'relative' is defined to include a parent under section 995-1 of the ITAA 1997.

Therefore, the lump sum compensation payment you received for the death of your parent is not statutory income, does not form part of your assessable income, and is not subject to tax.

Ongoing weekly compensation payments

The ongoing weekly compensation payments will be made regularly, and they are made in substitution of income and to provide financial support because at the time of your parent's death you were dependent upon his earnings.

You have an expectation of receiving these benefits on a regular basis so that you are able to depend on it for your regular expenditure.

The ongoing weekly compensation payments are ordinary income and are included in your assessable income.

Taxation of a minor's income

Special rules apply when calculating the tax payable on income of children or minors (that is, persons under the age of 18). The rules apply a higher rate of tax to some income earned by children.

However, ordinary rates of tax still apply to certain types of income. Such income is called 'excepted assessable income' under subsection 102AE(2) of the Income Tax Assessment Act 1936 (ITAA 1936) and includes:

•                employment income

•                income from a deceased estate

•                income from property transferred to the minor as a result of the death of another person or income in the form of damages for an injury they suffered, and

•                income from the investment of any of the amounts listed above.

Taxation Determination TD 92/133 deals with the application of the special rules to weekly compensation payments made under workers' compensation legislation to a dependant child of a deceased employee.

TD 92/133 provides that repealed subsection 221A(1) of the ITAA 1936 defines salary or wages as salary, wages, commission, bonuses or allowances and includes any payments that are covered by Division 52, 53 or 55 of ITAA 1997, any payments of amounts to which section 26AC of this Act or section 15-3 of the ITAA 1997 applies, any payments of amounts that are assessable retirement amounts for the purposes of this definition, eligible termination payments and any payments made:

(a) ...

(b) ...

(c) by way of superannuation, pension or retiring allowance or by way of an annuity or a supplement to a pension or annuity

(d) ...

TD 92/133 states that the weekly compensation payments are considered to be a pension and so are excepted assessable income.

Your ongoing weekly compensation payments are therefore excepted assessable income and are taxed at normal marginal rates of tax. That is, the special higher rates of tax set down in the special rules do not apply.

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