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Edited version of private ruling
Authorisation Number: 1011527052554
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Ruling
Subject: Compensation payment
Is a compensation receipt paid to you included in your assessable income?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2008
The scheme commenced on:
1 July 2007
Relevant facts and circumstances
You received a compensation payment as a result of the disruption of your income earning activities.
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 a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
A compensation amount generally bears the character of that which it is designed to replace (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; (1952) 10 ATD 82). If the compensation is paid for the loss of income then it will be regarded as ordinary income and therefore assessable under section 6-5 of the ITAA 1997.
In your case you have received a payment in compensation for loss of assessable income. The payment will therefore take on the character of the assessable income it is replacing and will be assessable to you under section 6-5 of the ITAA 1997.