Edited version of private ruling

Authorisation Number: 1011734028811

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Ruling

Subject: Compensation payments from Centrelink

Question 1

Are the payments you receive from Centrelink to compensate for loss of grandfathered parenting payment assessable income?

Answer: Yes.

Question 2

Are the payments you receive from Centrelink to compensate for loss of a pension card assessable?

Answer: No.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You suffered a financial loss as a result of Centrelinks failure to advise you of the implications of accepting a temporary position at a higher rate of pay.

You lost your 'grandfathered' status of Parenting Payment single as a result of accepting the temporary position at a higher rate of pay and now you are unable to have this 'grandfathered' status reinstated.

You have been granted compensation by Centrelink as a result of the cancellation of Parenting Payment and the loss of benefits covered by the Pension card.

The compensation will be paid at six monthly intervals until your child reaches 16 years of age.

Your six monthly payments will be made up of two payments - one being for the amount of parenting payment you would have received had you still been in receipt of it provided you remain eligible for the Parenting Payment Single payment using the eligibility test for a person on a Parenting Payment Single 'grandfathered' status.

The other part of the payment will be for an amount every sixth months to compensate for the cancellation of the Pension Concession card, once it is proven that there was a financial loss due to the cancellation of the pension card.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-5(2)

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 10-5

Reasons for decision

Question 1

Lump sum payment received from Centrelink for loss of Parenting Payment

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.

Parenting Payment Single (PPS) is a periodic Centrelink payment that is not made exempt by any provision in the legislation is assessable as ordinary income.

An amount paid to compensate for loss generally acquires the character of that for which it is substituted (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; (1952) 10 ATD 82). Compensation payments that substitute for income have been held by the courts to be income under ordinary concepts (Federal Commissioner of Taxation v. Inkster (1989) 24 FCR 53; 89 ATC 5142, (1989) 20 ATR 1516). The payment retains the characteristics of ordinary income even though paid as a lump sum.

In your case, you received a lump sum to replace periodic income payments and will continue to receive a lump sum every six months to compensate the amount of PPS you would have received for the previous six months. These payments will be received from Centrelink and calculated based on the amount of money you would have been entitled to had you been still been registered for the PPS on a 'grandfathered' status.

The lump sum compensation amounts you receive are payments for loss of income and so are fully assessable when received, under subsection 6-5(2) of the ITAA 1997. This is the case even though part of the payment relates to earlier income years.

Please note, certain disability pensions (unlike PPS payments) are made exempt under specific sections in the ITAA 1997. There is no such provision which makes PPS an exempt payment.

Question 2

Lump sum payments received from Centrelink for loss of Pension Concession Card

The benefits received from holding a Pension Concession card are not classed as ordinary income under section 6-5 of the 1997 ITAA nor are there any specific provisions in section 10-5 of the ITAA 1997 that would make them statutory income. Therefore the benefits received would not be assessable income. As compensation payments retain the characteristics of the income they are replacing, the lump sum amounts you will receive every six months to compensate your financial loss from no longer holding a pension concession card are not assessable income.