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Edited version of your private ruling
Authorisation Number: 1012460348898
Ruling
Subject: Compensation payments
Question
Are the compensation payments you are receiving assessable income.
Answer
No
This ruling applies for the following periods
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commences on
1 July 2012
Relevant facts and circumstances
You were injured as a result of a criminal offence.
You provided the court with a victim impact statement.
You had minimal time off work and the only property damage was to some clothing and sunglasses.
The offender was found guilty by the court, and charged with common assault.
You received a cheque in the mail and you made enquires into why you had received the funds. You were advised that the court had fined the offender and ordered the fine imposed be paid to you.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 102-5
Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)
Reasons for decision
Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary and statutory income derived directly and indirectly from all sources during the income year.
Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business.
Other characteristics of income that have evolved from case law include receipts that:
· are earned
· are expected
· are relied upon
· have an element of periodicity, recurrence or regularity.
In your case, the payments you have received and will continue to receive over a period of time are not from rendering personal services, income from property or income from carrying on a business.
You have received the funds as a result of injuries you sustained from a criminal offence committed against you. Under the states legislation the court ordered that the fine imposed on the offender was to be paid you.
The fact that the amount will be paid periodically does not change the character of the payment to one of an income nature. Where the compensation payment is not paid one-off, the amounts are considered as instalments of an ascertained capital lump sum.
The payments you are being paid are not assessable under section 6-5 of the ITAA 1997 as ordinary income.
Capital gains tax (CGT)
Statutory income is amounts that are not ordinary income but are included in assessable income by another provision. Section 102-5 of the ITAA 1997 provides that assessable income includes net capital gains for the income year.
However, paragraph 118-37 (1)(b) of the ITAA 1997 disregards a capital gain made from a CGT event where the amount relates to compensation or damages received for any wrong, injury or illness you suffer personally.
As the compensation amount you will receive is not assessable as either ordinary income or statutory income, no part of it is included in your assessable income