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Ruling
Subject: Assessability of lump sum payment
Question and answer:
Is a lump sum payment assessable in the year it is received?
Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You are an Australian resident for tax purposes.
You have received an assessable lump sum pension payment from an overseas country.
The lump sum payment also represents entitlements for previous years.
Relevant legislative provisions
Income Tax Assessment Act 1997, Section 6-5
Income Tax Assessment Act 1997, Subsection 6-5(4)
Reasons for decision
Assessable income for Australian residents includes income you derived directly or indirectly from all sources under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
Subsection 6-5(4) of the ITAA 1997 provides that in working out whether a taxpayer has derived an amount of ordinary income and when it was derived, the taxpayer is taken to have received the amount when it is applied or dealt with in any way on the taxpayer's behalf or as the taxpayer directs.
In determining the basis of derivation of income, paragraph 42 of Taxation Ruling TR 98/1 Income tax: Determination of income; receipts versus earnings, provides as a general rule, where a taxpayer uses the cash based method for recording income, that income is assessable when received or applied at the taxpayer's direction. An amount received as a lump sum representing arrears of unpaid pension is ordinary income and forms part of the assessable income in the year of receipt.
As an individual you use the cash based method for recording income, accordingly, the lump sum pension paid to you is assessable in the income year that it has been received.