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Edited version of your private ruling
Authorisation Number: 1012461143122
Ruling
Subject: Compensation payment
Question: 1
Will the lump sum payment you received be included in your assessable income?
Answer:
No.
Question: 2
Will any capital gain arising from the lump sum payment be disregarded?
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
You received a personal injury arising out of, or in the course of, your employment.
You made a worker's compensation claim as your suffered a disability.
Your insurer has agreed to settle your claim.
You have signed a memorandum of agreement for compensation payment you have received in respect of a permanent impairment and medical expenses.
In acceptance of the payment you will give up your right to be paid for any future compensation in relation to your disability.
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 a taxpayer 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, you suffered an injury at your work place and as a result sustained a permanent impairment. You received compensation payment for medical and permanent impairment.
The lump sum payment you accepted is not income from rendering personal services, income from property or income from carrying on a business.
The payment is also not earned, expected, relied upon and is a one off payment and thus it does not have an element of recurrence or regularity.
The lump sum payment is not considered to be ordinary income.
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, a capital gain made where the amount relates to compensation or damages you receive for any wrong, injury or illness you suffer personally is disregarded.
Accordingly, the settlement amount you receive is not assessable as statutory income under section 6-10 of the ITAA 1997.
As the settlement amount you receive is not assessable as either ordinary income or statutory income, no part of it is included in your assessable income.