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Edited version of your private ruling
Authorisation Number: 1012444179859
Ruling
Subject: Assessability of pension and bereavement payments
Questions and answers
Are the periodic compensation payments you receive on behalf of your minor child part of your assessable income?
No
This ruling applies for the following periods
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You receive weekly amounts paid by the accident compensation in Country A on behalf of your child
Country A has stopped deducting tax from the payment for those claimants living in Australia.
The payment is made into a joint account.
The account is in joint names as your child is under 18 years of age.
All funds in the account are used solely for your children's education.
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 child has an entitlement to receive compensation payment due to the death of their parent from an accident. The payments are in the nature of compensation for loss of income or income support previously provided by their 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 your child 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 but 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 child concerned, and that they are paid to you on behalf of the child, the payments are not derived by you in your own right.
Therefore, the weekly benefits paid to you on behalf of your child while income is 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.
Further information
Special rules apply in calculating the tax payable on income of a minor. Under these special rules certain income earned by minors are taxed at the highest marginal rate. However there are situations where these special rules will not apply and the income derived by the minor will be taxed at the usual tax rates applying to taxpayers over the age of 18 years. One of those situations is where the minor is in receipt of compensation income as a result of the loss of parental support.