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Edited version of private ruling
Authorisation Number: 1011670820480
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Ruling
Subject: Compensation payment
Are the fortnightly incapacity payments you receive exempt income?
Yes.
This ruling applies for the following period
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2010
Relevant facts
You were a member of the Defence Force Reservists.
You suffered injuries while on duty.
You were medically discharged.
You receive a fortnightly compensation payment.
The entitlements you are receiving are paid under section 19 of the Safety Rehabilitation & Compensation Act 1988.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 6-15.
Income Tax Assessment Act 1997 Section 6-20.
Income Tax Assessment Act 1997 Section 51-33.
Taxation Administration Act 1953 Section Sch1-12-1.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer shall include the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the taxation year.
Section 6-15 of the ITAA 1997 provides that ordinary income which is exempt income is not assessable income.
Section 6-20 of the ITAA 1997 provides that ordinary income is exempt income if it is made exempt from income tax by a provision of the Income Tax Assessment Act 1936, the ITAA 1997 or another Commonwealth law.
Division 51 of the ITAA 1997 deals with amounts of ordinary income and statutory income that are exempt from income tax.
Compensation paid to a taxpayer who leaves the Reserve Defence Forces due to injury sustained whilst on duty for one of the Reserve Forces is exempt from income tax under section 51-33 of the ITAA 1997.
In your case, you meet the requirements set out under section 51-33 of the ITAA 1997. Therefore, the fortnightly payments you receive are exempt income under section 51-33 of the ITAA 1997 and are not subject to pay as you go withholding under the section 12-1 of Taxation Administration Act 1953.