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Edited version of private ruling
Authorisation Number: 1011896580776
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Ruling
Subject: Derivation of income
Question and answer:
1. Is the income from your salary continuance insurance included in your assessable income in the year of receipt?
Yes.
2. Does the Commissioner have any discretion to include income accrued in a previous year in any year, other than the year of payment?
No.
This ruling applies for the following period:
1 July 2009 to 30 June 2011.
The scheme commenced on:
1 July 2009.
Relevant facts and circumstances:
You have been receiving salary continuance insurance benefits from your personal superannuation provider (your provider).
Your provider wrote to you on 1 July advising that a benefit had been paid to you for a period prior to the income year.
Your provider issued you with a payment summary indicating the benefit you received for the period prior to the income tax year was paid to you on 1 July.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) specifies that if you are an Australian resident, your assessable income includes the ordinary income you derive directly or indirectly from all sources, whether in or out of Australia in an income year.
Salary and wages are ordinary income.
Salary continuance insurance benefits are benefits paid to replace salary and are therefore treated the same as salary and wages for income tax purposes. That is, salary continuance insurance benefits are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-5(4) of the ITAA 1997 states 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.
To avoid confusion over when salary or wages are derived by a taxpayer, paragraph 42 of Taxation Ruling TR 98/1 Income tax: determination of income; receipts versus earnings states that salary, wages or other employment remuneration are assessable on receipt, even though they relate to a past or future income period.
Conclusion
On 1 July you received an amount for salary continuance insurance benefits.
The amount you received was for a period prior to the income tax year.
You are taken to have derived the amount when you received it on 1 July.
Whilst we appreciate your circumstances, there is no discretion in the tax law for the Commissioner to allow you to include the amount relating to the accrual period as assessable income in any year other than the year of payment.
Accordingly, the amount you received on 1 July will be included in your assessable income in the income tax year.