Edited version of private ruling

Authorisation Number: 1011779643183

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Ruling

Subject: Assessability of insurance payments

Question and answer

Is an insurance payment from your home and contents insurance included in your assessable income?

No

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You received payments from your home and contents insurer to repair or replace items from storm damage.

The dwelling is your private main residence.

The insurance payment amounts were mostly used to repair or replace items.

An amount was set aside to purchase a new swimming pool instead of replacing a shed.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 6-5

Section 6-10

Section 15-30

Section 20-20

Section 20-35

Section 70-115

Reasons for decision

Under subsection 6-5(1) of the ITAA 1997 an amount is assessable income if it is income according to ordinary concepts (ordinary income).

In determining whether an amount is ordinary income, the courts have established the following principles:

· what receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise;

· whether the payment received is income depends upon a close examination of all relevant circumstances; and

· whether the payment received is income is an objective test.

Section 6-10 of the ITAA 1997 includes in assessable income amounts that are not ordinary income; these amounts are statutory income.

The relevant two provisions are:

· paragraph 26(e) of the ITAA 1936, which provides that the assessable income shall include '...the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to, any employment of or services rendered ...'; and

· paragraph 26(eaa) of the ITAA 1936, which provides that the assessable income shall include '... a benefit that, but for section 22 of the FBTAA 1986, would be an expense payment fringe benefit within the meaning of that Act the amount of the reimbursement referred to in that section ...'

Insurance payments are only included as assessable income in any of the following circumstances:

Insurance or indemnity for loss of assessable income (section 15-30 ITAA 1997)

The insurance payment is a reimbursement for an amount to which an income tax deduction was claimed (section 20-20 ITAA 1997)

The amount reimbursed does not exceed the loss or outgoing (section 20-35 ITAA 1997)

The amount reimbursed is compensation for lost trading stock (section 70-115 ITAA 1997)

The form and nature of your recoupment was not for the loss of assessable income, was not for an expense to which you were entitled a deduction, the payment amount was for the replacement value and the amount reimbursed for was not trading stock.

Your payment does not meet any of the circumstances mentioned above. You payment is not assessable.