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Edited version of private ruling
Authorisation Number: 1011711148852
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Ruling
Subject: Income Protection Insurance payments
Question
Are you assessable on the full amount of payments made from your Income Protection Policy?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2010
Relevant facts
You have an injury which results in you receiving income under an Income Protection Policy of which you are the owner.
You and your spouse separated.
As part of your Family Court agreement, your spouse will be entitled to half of your payments under the Policy.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a person, who is an Australian resident, shall include the ordinary income derived by the person from all sources during the income year. Income received under an Income Protection policy is considered to be ordinary income for the purpose of section 6-5 of the ITAA 1997.
Pursuant to subsections 6-5(2) and (3) ordinary income is included in the assessable income of a taxpayer when it is derived by that taxpayer. Subsection 6-5(4) further provides that in working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
In your case, you are considered to have derived the full amount of income paid under the policy. The fact that you agree to give half of the money to your former spouse under a Family Court agreement does not change the character of the payment in your hands. As you are the owner of the policy, the money paid under the policy is dealt with on your behalf and is considered to be derived by you. Consequently, you are assessable on the full amount of payments made under the policy.