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Edited version of your private ruling
Authorisation Number: 1012065683665
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Ruling
Subject: Back payment
Question 1
Is the payment you received in the 2010-11 financial year in respect of income relating to the 2009-10 financial year assessable income for the 2009-10 financial year?
Answer
No.
Question 2
Is the payment you received in the 2010-11 financial year in respect of income relating to the 2009-10 financial year assessable income for the 2010-11 financial year?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commences on:
1 July 2009
Relevant facts and circumstances
You made a work cover injury claim.
As a result of legal proceedings, your former employer's insurer was required to make income maintenance payments to you relating to a period in the 2009-10 financial year.
These payments were made in the 2010-11 financial year as a lump sum back payment and the insurer has issued you a payment summary for the 2010-11 financial year.
You contend that as the payments relate to the 2009-10 financial year, that is the period for which the payment summary should issue for.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5.
Reasons for decision
Income amounts are generally included in the calculation of a taxpayer's taxable income in the year in which they are received. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) requires an amount of ordinary income to be brought to account as assessable income when it has been derived.
Taxation Ruling TR 98/1 considers the appropriate method of determining when income is derived under subsection 6-5(2) of the ITAA 1997 where income is earned in one tax year but received in another. Paragraph 42 of TR 98/1 states that salary and wages or other employment remuneration is assessable on receipts basis. This is irrespective of whether that income relates to a past or future income period. Therefore, a lump sum amount of employment related income in arrears will be included in a taxpayer's taxable income in the year in which it is received.
Also, Taxation Ruling IT 2107 states that a lump sum arrears payment of workers compensation is included in the assessable income of the recipient in the year it is paid, irrespective of the period to which that compensation relates.
In your case, you received a lump sum arrears payment during the 2010-11 financial year in respect of compensation income relating to the previous financial year. This amount should be included in your assessable income for the 2010-11 financial year under section 6-5 of the ITAA 1997.
Additional information
Individual taxpayers, who receive certain assessable lump sum payments containing an amount that accrued in earlier income years, may be entitled to a lump sum in arrears tax offset.
The tax offset is intended to overcome the problem of the lump sum attracting more tax in the year of receipt than would have been payable if the payment had been taxed in each of the years in which it accrued.
If your lump sum in arrears payment is more than 10% of your 'normal taxable income' for the income year, you may be entitled to a lump sum in arrears tax offset.
Information on this offset, including a calculator and how to claim this offset can be found by searching for 'Lump sum payments in arrears' on our website, www.ato.gov.au.