Edited version of private advice

Authorisation Number: 1052423176187

Date of advice: 22 August 2025

Ruling

Subject: Lump Sum payment

Question 1:

Was the payment of $000,000.00 (inclusive of a $000.00 premium refund), made by xxxx Australia Limited (ABN xxx xxx xxx xx) to a solicitor's trust account (the Payment), after the death of XXXX (the Deceased), a superannuation benefit as described at item 1 of the table under subsection 307-5(1) of the Income Tax assessment Act 1997 (ITAA 1997)?

Answer 1

No.

Question 2:

Is any capital gain or loss your client makes due to receiving the payment disregarded under subsection 118-300(1) of ITAA 1997?

Answer 2

Yes.

This ruling applies for the following

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

1.               On XX XXXX 20XX, the Deceased commenced Total and Permanent Disability Insurance Superannuation Plan (TPD).

2.               The premium was paid by Company A and the TPD policy was owned by Company B

3.               On XX XXXX 20XX, the Deceased had surgery.

4.               On XX XXXX 20XX, the Deceased was told that they were critically ill, and their condition was terminal.

5.               On XX XXXX 20XX, the Deceased rang Insurer A to lodge a claim for terminal illness.

6.               On XX XXXX 20XX, the Deceased passed.

7.               Insurer A stated they were unable to contact the Deceased and subsequently cancelled their policy on XX XXXX 20XX. Insurer A took the stance that this was a TPD policy and not a death policy so there would be no payout.

8.               On XX XXXX 20XX, Insurer A admitted there was a phone call made by the Deceased.

9.               Insurer A agreed the Deceased was entitled to a payout regarding their medical condition and of $XX.XX plus $XX.XX was paid by xxxx to the solicitor's trust account on XX XXXX 20XX.

Relevant legislative provisions

ITAA 1997 Sec 6-5

ITAA 1997 Sec 6-10

ITAA 1997 Sec 104-25

ITAA 1997 Sec 118-300

ITAA 1997 Sec 995-1(1)

ITAA 1997 Div 301

ITAA 1997 Div 302

Reasons for decision

Question 1

The Payment made by xxxx to the Solicitor's trust account is not a superannuation benefit under subsection 307-5(1) of the (ITAA 1997).

10.            Subsection 995-1(1) of the ITAA 1997 defines 'superannuation benefit' as having the meaning given by section 307-5.

11.            Section 307-5 of the ITAA 1997 states:

307-5(1) A superannuation benefit is a payment described in the table.

Table 1: Types of superannuation benefits

(Table truncated)

307-5(2) A superannuation member benefit is a payment described in column 2 of the table.

307-5(4) A superannuation death benefit is a payment described in column 3 of the table.

12.            As can be seen from the above table, the recognition of a superannuation benefit is dependent on the benefit payment being made from a superannuation fund.

13.            Under subsection 995-1 (1) of the (ITAA 1997), superannuation fund is defined as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA).

14.            Section 10 of the SISA defines a superannuation fund as a fund that '(a) is an indefinitely continuing fund; and is a provident, benefit, superannuation or retirement fund; or (b) is a public sector superannuation scheme'.

15.            In this case the Payment was made by xxxx, which is an Australian public company, rather than a superannuation fund.

16.            It follows that the Payment was not a superannuation benefit, and as such was not taxable under Divisions 301 and 302 of the ITAA 1997.

Question 2

17.            Section 6-5 of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income).

18.            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.

19.            Other characteristics of 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.

Application to your circumstances

20.            In your case the (once-off) lump sum Payment is not income according to ordinary concepts and is not assessable under section 6-5 of the ITAA 1997. The Payment bears none of the characteristics of ordinary income as it lacks any element of periodicity, recurrence or regularity. Therefore, the payment is capital in nature and will not be assessable as ordinary income.

Statutory income

21.            Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income. Receipt of a lump sum payment may give rise to a capital gain (statutory income).

22.            Part 3-1 of the ITAA 1997 contains the capital gains and capital losses provisions. You make a capital gain or capital loss if a CGT event happens.

23.            Upon the receipt of the TPD payment under the policy, CGT event C2 (section 104-25 of the ITAA 1997) happened because the rights, being the CGT asset, in respect of the total and permanent disablement sum under the policy ended. The trust will make a capital gain if the capital proceeds are more than the asset's cost base. The trust will make a capital loss if those capital proceeds are less than the asset's reduced cost base. The legal expenses will form part of the cost base. The Payment is the capital proceeds.

24.            In some instances, a capital gain may be reduced or disregarded. For example, subsection 118-300(1) of the ITAA 1997 allows a capital gain to be disregarded in certain circumstances where the CGT asset is an interest in rights under an insurance policy. These circumstances include general insurance policies where property is insured and life insurance policies.

25.            In your case, the legal entity owning the policy was Company B, but the Deceased also had rights as the insured person. The rights held by the Deceased passed to your client on their death.

26.            CGT event C2 happened to the rights held by you when your solicitors received the Payment. This CGT event is in relation to the policy as the Payment relates to the rights the Deceased had as the insured person.

27.            Item 4 of the table in subsection 118-300(1) states that a capital gain or loss made from a CGT event happening in relation to a CGT asset that is your interest in rights under a life insurance policy is disregarded if you are an entity that acquired the interest in the policy or instrument for no consideration. As your client acquired the interest in the policy for no consideration as part of the Deceased estate, the capital gain they made is disregarded.

28.            The Payment is therefore disregarded under Item 4 of subsection 118-300(1) of ITAA 1997.

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