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Edited version of your private ruling
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Ruling
Subject: Compensation payment
Question
Does the compensation you received for the wrongful death of your relative form part of your assessable income?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You received a compensation payment as a result of the wrongful death of your relative.
The payment was for damages on account of personal injury. No part of the payment represented loss of income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 118-37
Income Tax Assessment Act 1997 Section 995
Reasons for decision
Summary
The compensation payment you received for the wrongful death of your relative does not form part of your assessable.
Detailed reasoning
Subsection 6-5(2) of the ITAA 1997 states that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Ordinary income is income according to ordinary concepts which is not specifically defined in the legislation.
However, characteristics of ordinary income that have evolved from case law include receipts that:
· are earned
· are expected
· are relied upon, and
· have an element of periodicity, recurrence or regularity.
Payment for personal services, whether received in the capacity of an employee or otherwise in connection with employment or other personal services income is income according to ordinary concepts. Similarly, any payment (for example compensation) to replace income is also considered to be income for ordinary concepts.
You have received a compensation payment for the wrongful death of your relative. The payment was for personal injury and not for loss of income.
The compensation payment received is therefore not income according to ordinary concepts and not assessable under section 6-5 of the ITAA 1997.
Where an amount of income is not ordinary income it may be included in a taxpayer's assessable income under section 6-10 of the ITAA 1997. This income is called statutory income and is made assessable by a specific provision of the taxation legislation.
Section 118-37 of the ITAA 1997 specifically excludes compensation or damages received for any wrong, injury or illness your relative suffers personally. Thus, the compensation payment you received is not statutory income.
The compensation payment you received for the wrongful death of your relative does not form part of your assessable income.