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Edited version of your private ruling
Authorisation Number: 1012514024487
Ruling
Subject: Assessability of pension and bereavement payments.
Questions and answers
1. Is the lump sum compensation payment you received as a result of the death of your relative included in your assessable income?
No.
2. Are the compensation payments paid to you weekly as a result of the death of your relative included in your assessable income?
Yes.
This ruling applies for the following periods
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2011
Relevant facts
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are Australian residents for taxation purposes.
You are all under the age of 18.
Your relative passed away.
You received a lump sum survivor's grant from another country.
You receive weekly compensation payments.
Tax has not been withheld from these payments and they are indexed annually.
The weekly payment that you receive will continue until the end of the year that you turn 18 (or 21 if you continue full-time study).
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 6-5 (4)
Reasons for decision
The assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Ordinary income is income according to ordinary concepts which is not specifically defined in the legislation.
However, characteristics of ordinary 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.
Payment for personal services, whether received in the capacity of an employee or otherwise in connection with employment or other personal services income is income according to ordinary concepts. Similarly, any payment (for example compensation) to replace income is also considered to be income for ordinary concepts.
Where an amount of income is not ordinary income it may be included in a taxpayer's assessable income under section 6-10 of the ITAA 1997. This income is called statutory income and is made assessable by a specific provision of the taxation legislation.
Where an amount is not ordinary income or statutory income it is not assessable income and you do not have to pay tax on it.
Lump sum compensation payment
The lump sum compensation payment you received as a result of the death of your relative is not ordinary income. The payment is not a payment for personal services and does not have the characteristics of ordinary income.
Some compensation payments may be statutory income and assessable. However, section 118-37 of the ITAA 1997 specifically excludes compensation or damages received for any wrong, injury or illness your relative suffers personally. The term 'relative' is defined to include a parent.
Thus the lump sum compensation payment is not statutory income.
The lump sum compensation payment you received does not form part of your assessable income and is not subject to tax.
Prescribed children's benefits
The prescribed children's benefits payments are made regularly and are calculated with reference to average weekly earnings. They are made in substitution of income and to provide financial support because at the time of your relative's death you were dependent upon the earnings they provided. You have an expectation of receiving these benefits on a regular basis so that you are able to depend on it for your regular expenditure.
The prescribed children's benefits payments are ordinary income and are included in your assessable income.
Taxation of a minor's income
Special rules apply when calculating the tax payable on income of children or minors (that is, persons under the age of 18). The rules apply a higher rate of tax to some income earned by children.
However, ordinary rates of tax still apply to certain types of income. Such income is called 'excepted assessable income' and includes:
· employment income
· income from a deceased estate
· income from property transferred to the minor as a result of the death of another person or income in the form of damages for an injury they suffered, and
· income from the investment of any of the amounts listed above.
Taxation Determination TD 92/133 deals with the application of the special rules to weekly compensation payments made under workers' compensation legislation to a dependant child of a deceased employee. TD 92/133 states that the weekly compensation payments are considered to be employment income and so are excepted assessable income.
Your prescribed children's benefits are therefore excepted assessable income and are taxed at normal marginal rates of tax. That is, the special higher rates of tax set down in the special rules do not apply.
If you are required to lodge a tax return please ensure you complete the Under 18 Adjustments section of your tax return to ensure that this income is taxed at the correct rates.