| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012470825851
Ruling
Subject: Compensation
Question
Is the lump sum compensation payment included in your assessable income?
Answer
No
This ruling applies for the following period
Year ending 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
You are a victim of crime.
You have been awarded a lump sum compensation payment.
The payment was in relation to compensation for injury.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
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.
In your case the payment you received was compensation for suffering caused by being a victim of crime.
The payment does not have the characteristics of ordinary income and was not earned by you and did not relate to services performed. The payment is also a one-off payment and does not have an element of recurrence or regularity. Although the payment can be said to be expected and perhaps relied upon, this expectation arises from the suffering resulting from being a victim of crime.
Therefore the lump sum payment is not income according to ordinary concepts and is not assessable under section 6-5 of the ITAA 1997.
Capital Gain
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but may be assessable under another provision are called statutory income.
Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(b) of the ITAA 1997 disregards payments or receipts for capital gains purposes where the amount relates to compensation or damages a person receives for any personal wrong, injury or illness.
In your case, the payment was made to you as a result of a personal wrong, and as such the payment will be exempt from capital gains tax under paragraph 118-37(1)(b) of the ITAA 1997.