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Ruling
Subject: Assessability of insurance payment
Question and answer
Is the insurance payment you received assessable income?
No.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You suffered injuries in a motor vehicle accident.
You received a specific injury benefit payment under your insurance policy as a result of this accident.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Subsection 6-5(2).
Income Tax Assessment Act 1997 Section 6-10.
Income Tax Assessment Act 1997 Paragraph 118-37(1)(b).
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
The insurance payment you received does not fall within the definition of ordinary income.
Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision.
Compensation resulting from personal injury represents a disposal of an asset for capital gains tax (CGT) purposes. The disposal of an asset gives rise to a CGT event. However, paragraph 118-37(1)(b) of the ITAA 1997 disregards payments or receipts for the purposes of CGT where the amount relates to compensation or damages a taxpayer received for any personal wrong, injury or illness.
In your case, you received a specific injury benefit payment under your insurance policy as the result of injuries suffered in a motor vehicle accident. Paragraph 118-37(1)(b) of the ITAA 1997 will apply so that any capital gain or capital loss that was made will be disregarded for the purposes of CGT.
Therefore, the insurance amount you received is not assessable under either section 6-5 or section 6-10 of the ITAA 1997.