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Ruling
Subject: Lump sum payment in arrears
Question
Are the payments received in the 2010-11 financial year which accrued in the 2009-10 financial year eligible income for the purpose of calculating the lump sum in arrears (LSIA) tax offset?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You received two lump sum payments in the 2010-11 financial year for total and temporary disablement that accrued in the 2009-10 financial year. You also received monthly payments in the 2010-11 financial year.
The income protection policy under which the payments were made is owned by the Superannuation Plan.
The arrears amount received is more than 10% of your normal taxable income for the 2010-11 financial year.
The amount paid was calculated at a monthly rate.
You were issued with a PAYG summary which shows the arrears amount and the monthly amount received as gross payments.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 159ZRA
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Individual taxpayers who receive certain income in a lump sum payment that contains an amount that accrued in an earlier income year or years may be entitled to a lump sum payment in arrears tax offset under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936). The lump sum payment is assessable income in the year in which it is received, under section 6-5 of the Income Tax Assessment Act 1997.
To be eligible for the LSIA tax offset, a taxpayer must have received a lump sum payment of eligible income that accrued, in whole or in part, in an earlier year or years of income, and the amount of the eligible lump sum that accrued before the year of receipt must not be less than 10% of the normal taxable income of the year of receipt.
Eligible income is defined in subsection 159ZR(1) of the ITAA 1936 to include income by way of compensation or sickness or accident pay that is:
· in respect of an incapacity for work;
· calculated at a weekly or other periodical rate; and
· not made under a policy of insurance to the owner of the policy.
You received a lump sum amount for total and temporary disablement in the 2010-11 financial year that accrued in the 2009-10 financial year under a policy of which you are not the owner. The amount was calculated at a monthly rate and is not less than 10% of your normal taxable income for the 2010-11 financial year. Therefore, the arrears payments you receive are eligible payments for the purpose of calculating the LSIA tax offset.