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Ruling
Subject: lump sum in arrears
Questions and answers:
1. Is the lump sum payment assessable income?
Yes.
2. Is the lump sum assessable in the income year in which it is paid?
Yes.
This ruling applies for the following period:
1/07/2004 to 30/06/2005
1/07/2005 to 30/06/2006
1/07/2006 to 30/06/2007
1/07/2007 to 30/06/2008
1/07/2008 to 30/06/2009
1/07/2010 to 30/06/2011
The scheme commenced on:
1 July 2004
Relevant facts and circumstances
You sustained an injury at work.
You received a lump sum compensation payment.
The compensation is for loss of wages caused by your inability to get paid employment because of injuries.
The lump sum was paid during the income year ended 30 June 2011 but relates to the earlier income years.
You received a PAYG payment summary for the payment which shows it at lump sum in arrears label E. Tax was withheld from this payment.
Relevant legislation provisions:
Income Tax Assessment Act 1997 Division 10
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Reasons for decision
Lump sum payments and assessable income
Division 6 of the Income Tax Assessment Act 1997 (ITAA 1997) states that income is assessable either as ordinary or as statutory income. Section 6-5 of the ITAA 1997 states that ordinary income is 'income according to ordinary concepts', and section 6-10 of the ITAA 1997 states that statutory income is amounts that are not ordinary income, but are included in your assessable income under a separate provisions of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997.
Your total assessable income for the year ended 30 June 20xx included a lump sum payment of $XXXX, resulting from injuries you sustained at work. This represented a retrospective payment relating to the period 1 July 20xx to 30 June 20xx. All of these payments related to the fact that your injuries meant your were unable to engage in paid employment
Loss of wages
Taxation Determination TD 93/58 states that, if a lump sum payment is compensation for loss of income, it is assessable income under section 6-5 of the ITAA 1997, as ordinary income in the year of receipt.
All of your lump sum payment was awarded for loss of wages for the period 1 July 20xx to 30 June 20xx. As this payment was awarded for loss of wages it is assessable income under section 6-5 of the ITAA 1997 and is assessable as ordinary income in the year of receipt, the income year ended 30 June 20cc.