Edited version of your private ruling

Authorisation Number: 1011945772133

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Ruling

Subject: Assessability of compensation payment

Questions and answers:

Is the payment you received in compensation under the scheme for Compensation for Detriment caused by Defective Administration to be included in your assessable income in the 2011-12 income year?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You lodged a claim for defective administration by the ATO.

The compensation amount was for the additional costs incurred with your tax accountant as a result of the defective actions of the ATO.

The ATO subsequently accepted the compensation claim.

You received the payment in the 2011-12 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 10-5
Income Tax Assessment Act 1997 Section 20-20
Income Tax Assessment Act 1997 Section 20-25
Income Tax Assessment Act 1997 Section 20-30(1)
Income Tax Assessment Act 1997 Section 20-30(2)

Reasons for decision

Please note that all references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Assessable income

Sections 6-5 and 6-10 explain that your assessable income consists of income according to ordinary concepts, such as salary and wages, as well as other amounts that are included under alternative provisions of either the Income Tax Assessment Act 1997 (ITAA 1936) or ITAA 1997.

Section 10-5 lists the provisions about assessable income. Included in the list is Subdivision 20-A which deals with amounts received in the form of a recoupment for deductible losses or outgoings. Recoupment is defined in section 20-25 to include any kind of reimbursement, refund, insurance, indemnity or recovery (however described) and a grant in respect of the particular loss or outgoing.

A recoupment amount is only included in your assessable income if you receive the amount as an 'assessable' recoupment. Section 20-20 explains that an assessable recoupment will arise if you receive it for a loss or outgoing that you can deduct under a provision listed in section 20-30 of the ITAA 1997.

Subsections 20-30(1) and (2) provide tables of the deductions available for which recoupments are generally assessable under Subdivision 20. Item 1.3 of the table listed in subsection 20-30(1) specifically includes tax-related expenses as an assessable recoupment.

Therefore, the payment you received to compensate you for the costs you incurred from your tax agent is an assessable recoupment within the meaning of paragraph 20-25(1)(a) because it is related to taxation expenses, which are a deductible loss or outgoing.

You will need to include the amount in your assessable income for the 2011-12 income year.