Edited version of your private ruling

Authorisation Number: 1012463134241

Ruling

Subject: Assessable income

Question

Are the monthly benefit payments received under your insurance plan policy (the insurance policy) assessable income when you are not engaged in any employment?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on

1 July 2012

Relevant facts and circumstances

You ceased to be employed in the relevant year and have not been employed since.

You entered into an insurance policy after you ceased working.

Under the Sickness & Injury Cover that you took out under your insurance policy, as a policy holder who is not working before the claim, you can make a claim if you are unable to perform your regular daily activities, such as domestic duties, without assistance.

Under the insurance policy, you are entitled to receive, after a waiting period, monthly payments for a maximum period.

You can spend the monthly benefit payments received on any bill and you do not need to show any receipts or keep a diary of your expenses.

You made a claim on the insurance policy when you suffered a medical condition.

You began to accrue monthly benefit payments which is payable to you monthly in arrears.

As your medical certificate only covers you for a period, the monthly benefit payments will continue until the earlier of when your medical condition improves and the end of the financial year.

If you obtain a renewal of the medical certificate, you maybe able to continue to receive the monthly benefit payments beyond that time but not exceed the maximum pay out period.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Section 6-10.

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or 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, and

· have an element of periodicity, recurrence or regularity.

Section 6-10 of the ITAA 1977 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income.

The characteristics of income were recently reviewed by the High Court in the decision of Federal Commissioner of Taxation v Anstis 2010 ATC 20-221 (the Anstis's case), where the judges analysed the case law on what constitutes ordinary income.

The Court referred to the unanimous decision of the High Court in Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 at 215 which refers to the periodicity, regularity and recurrence of a receipt as being a hallmark of income.

The periodicity, regularity and recurrence of a receipt has been considered to be a hallmark of its character as income in accordance with the ordinary concepts and usages of mankind…

The Court has recognised that, by itself, periodicity of receipts will not necessarily be sufficient to give those receipts the character of income.

It is noted that in the Anstis's case, the recipients are not required to account for the manner in which the payments are in fact expended and the Court has held that actual reliance by the taxpayer is not required to give a receipt of the character of the income.

In your circumstances, the monthly benefit payments received were not earned. However, the monthly benefit payments are periodic, regular and recurrent. You expected the monthly benefit payments, based on the insurance policy you took out to support you and your dependants when you were unable to perform regular daily duties.

You were likely relying on the monthly benefit payments. However, similar to the facts in the Anstis's case, you were not required to account for the manner in which the payments were in fact expended, and, as held by the High Court in the Anstis's case, actual reliance is not required.

In view of the above, the monthly benefit payments made to you under the insurance policy is considered to be ordinary income under subsection 6-5(2) the ITAA 1997.

As the monthly benefit payments are ordinary income, it s not necessary to consider if they are statutory income.

In conclusion, the monthly benefit payments received by you are ordinary income and form part of your assessable income for the income year.