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Ruling

Subject: Assessable income and flood levy

Question 1

Is the taxable component of the payment you received for superannuation entitlements included in calculating your taxable income for the purposes of the Temporary Flood and Cyclone Reconstruction Levy (the flood levy)?

Answer

Yes.

Question 2

Are you required to pay the flood levy if your taxable income for the year ended 30 June 2012 exceeds $50,000?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents:

· the application for private ruling

· the additional documents that were provided with the application for private ruling

These documents form part of and are to be read with this description.

You were awarded a fixed sum payment from a Family Law Court settlement for a marriage breakdown.

The settlement represented a superannuation entitlement of your ex spouse.

The settlement amount was to provide for the care of your children.

You incurred an injury and your earnings were significantly reduced.

You withdrew the superannuation entitlement as a lump sum payment to care for your children.

The payment contained both taxable and tax-free components.

You had not been affected by a natural disaster.

Relevant legislative provisions

Income Tax Assessment (Transitional Provisions) Act 1997 Section 4-10

Income Tax Assessment Act 1997 Section 4-15

Income Tax Assessment Act 1997 Section 6-10,

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Section 6-15,

Income Tax Assessment Act 1997 Section 6-20,

Income Tax Assessment Act 1997 Section 6-23,

Income Tax Assessment Act 1997 Section 11-5,

Income Tax Assessment Act 1997 Section 11-15

Income Tax Assessment Act 1997 Section 11-20.

Reasons for decision

Summary

The taxable components of the payments you received for superannuation entitlements are included in determining your taxable income for flood levy purposes. Your taxable income will also include the other amounts of assessable income you received including those amounts that you would not normally receive in a financial year.

The Commissioner does not have the discretion to disregard any of these amounts from your taxable income when calculating the amount of flood levy payable.

As you have not been affected by a natural disaster you are required to pay the flood levy if your taxable income exceeds $50,000 in the 2011-12 financial year.

Detailed reasoning

Taxable income

The Australian Government has introduced the flood levy for the financial year ended 30 June 2012. The flood levy is designed to assist affected communities to recover from the recent natural disasters by providing additional funding to rebuild essential infrastructure, such as, roads, bridges and schools.

Section 4-10 of the Income Tax (Transitional Provisions) Act 1997 states you must pay the flood levy where your taxable income for the 2011-12 financial year exceeds $50,000 unless you are covered by the exemption provision. The flood levy is an additional amount to the normal income tax calculated on your taxable income.

Section 4-15 of the Income Tax Assessment Act 1997 (ITAA 1997) states you work out your taxable income for the year like this:

Taxable income = assessable income less deductions.

An Australian resident's assessable income consists of ordinary income and statutory income derived directly or indirectly from all sources, whether in or out of Australia.

Ordinary income is defined in subsection 6-5(1) of the ITAA 1997 as 'income according to ordinary concepts'. There is no specific guidance on what is meant by 'ordinary concepts', but case law on the topic has indentified various factors which may be relevant in determining whether an amount is income according to ordinary concepts. Generally it is accepted to mean income as understood at common law.

Statutory income consists of those amounts that are specifically included in your assessable income by a provision of the taxation legislation. Division 10 of the ITAA 1997 contains a list of the types of income that are considered to be statutory income and the relevant legislative provision(s).

In addition to ordinary and statutory income the taxation legislation defines two other types of income - exempt income and non-assessable non-exempt income.

Exempt income is an amount of ordinary income or statutory income which is made exempt from income tax by a provision of the taxation legislation or another Commonwealth law. Sections 11-5, 11-10 and 11-15 of the ITAA 1997 list the legislative provisions which exempt income from tax.

Non-assessable non-exempt income is an amount of ordinary or statutory income that a provision of the taxation legislation or another Commonwealth law states is not assessable income or exempt income. Subdivision 11-B of the ITAA 1997 lists the legislative provisions about non-assessable non-exempt income.

Amounts of exempt income and non-assessable non-exempt income which you receive in the year ended 30 June 2012 are not included in calculating your taxable income for flood levy purposes.

The taxable components of the payments you received for superannuation entitlements are assessable under various provisions of the taxation legislation. Therefore, these amounts are statutory income and form part of the calculation of your taxable income.

The other taxable income amounts you will receive during the year ended 30 June 2012 are assessable as ordinary income or under various provisions of the taxation legislation. Therefore, these amounts form part of the calculation of your taxable income.

There is no provision within the taxation legislation which allows the Commissioner to exclude any components of otherwise assessable income from the calculation of your taxable income for flood levy purposes. Nor is the Commissioner able to omit any one-off payments which you would not normally receive during a financial year.

Accordingly, the flood levy will be calculated based on your total taxable income for the year ended 30 June 2012 which will include the taxable component of the amounts you received for the superannuation entitlements and any other taxable income you will received during the year.

Exemption from the flood levy

As stated above, you are exempted from paying the flood levy where your taxable income for the 2011-12 exceeds $50,000 if you are covered by the exemption provision.

The exemption provision requires the Minister to specify the classes of individuals in a legislative instrument who are not required to pay the levy. A class of individuals could only be specified if the Minister was satisfied that the class was affected by a natural disaster that happened during the 2010-11 financial year. Three classes were stated in the legislative instrument Income Tax - Temporary Flood and Cyclone Reconstruction Levy Exemption 2011.

In your case none of the classes would be applicable to you as you were not affected by a natural disaster during the 2010-11 financial year or as of 15 may 2012 in the 2011-12 financial year.

You do not meet any exemption from the flood levy. Accordingly, you will be liable to pay the flood levy on that portion of your taxable income that exceeds $50,000 for the 2011-12 financial year.