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Edited version of your private ruling
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Ruling
Subject: Assessability of compensation income
Questions and answers:
Is your compensation payment assessable income?
Yes.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
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 receive regular compensation payments.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes the ordinary income derived by the taxpayer directly or indirectly from all sources during the income year.
Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.
Other characteristics of income that have evolved from case law include receipts that:
· are earned
· are expected
· are relied upon, and
· have an element or periodicity, recurrence or regularity.
It is not necessary for all of these characteristics to exist for a particular receipt to be considered ordinary income.
Payments to replace income are also considered to be income (Kiely v. Federal Commissioner of Taxation (1983) 14 ATR 156; 83 ATC 4248).
Taxation Determination TD 93/3 provides that periodical compensation payments are considered to be ordinary income because they are paid as compensation for loss of income and/or because they are received regularly and are intended to provide an income supplement.
You receive periodic compensation payments.
The payments are expected and relied upon.
The compensation payments are therefore assessable as ordinary income under subsection 6-5(2) of the ITAA 1997.