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Edited version of your private ruling
Authorisation Number: 1012442468699
Ruling
Subject: Assessability of weekly compensation payments
Question and answer:
Are the periodic education payments you receive on behalf of your minor children part of your assessable income?
No.
This ruling applies for the following period:
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on:
1 July 2012
Relevant facts
You arrived in Australia and are an Australian resident for taxation purposes.
Your children are under the age of eighteen.
Your spouse and parent of your children passed away in country X.
As a result of his/her passing, you as trustee receive a weekly compensation payment from a private insurer for each your children.
The payments are made by a private insurer, under the country X Act.
Your children receive the weekly compensation payments as dependents of the deceased under this Act.
The payments will cease once each child reaches the age of 18.
You receive the payments on behalf of your children.
Relevant legislative provisions
Income Tax Assessment Act 1997, Subsection 6-5(2)
Income Tax Assessment Act 1997, Subsection 6-5(4)
Reasons for decision
Your children have an entitlement to receive a weekly compensation payment due to the death of their parent. The payments are in the nature of compensation for loss of income or income support previously provided by their deceased parent.
Compensation receipts which substitute for income have been held by the courts to be income under ordinary concepts. (Federal Commissioner of Taxation v. Inkster 89 ATC 5142, 20 ATR 1516; Tinkler v. Federal Commissioner of Taxation 79 ATC 4641, 10 ATR 411; Case Y47 91 ATC 433, 22 ATR 3422).
Therefore, the compensation payments you have received on behalf of children are in the nature of ordinary income.
However, the question arises as to whether you are assessable on this income
Taxation Determination TD 92/133 states that compensation paid under an Australian federal workers compensation act is assessable to the child of the deceased employee and not the child's parent or guardian. Even if the parent actually receives the payments, they are a constructive receipt of the child and therefore deemed to be derived by the child in accordance with subsection 6-5(4) of the ITAA 1997.
TD 92/133 is not confined to payments made under Australian federal legislation and can also be applied to other accident or compensation legislation that applies to dependent children of a deceased parent.
Therefore, in your case it is clear that the compensation payments are paid for the benefit of the children concerned, and that they are paid to you on behalf of the children, the payments are not derived by you in your own right.
Therefore, the weekly benefits paid to you on behalf of children while income are not assessable to you under section 6-5(2) of the ITAA 1997. You do not need to show this income in your income tax return.