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Edited version of your private ruling
Authorisation Number: 1012529828288
Ruling
Subject: Payment received for loss of income from a state government department
Question 1:
Is the payment you received from a state government department a structured settlement?
Answer:
No.
Question 2:
Is the loss of earnings component of the payment you received under a specified assistance program assessable?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
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.
Over two years ago you were subject to a violent incident and you suffered a number of injuries.
Last year you submitted an assistance application form to a state government department in relation to the above act of violence.
Early this year the following payments were approved by the state government department for:
· loss of earnings
· special assistance
· medical expenses - reimbursement of
These monies were paid into your nominated bank account.
You have supplied documentation to support your application and this documentation is to be read with and forms part of your application for the purpose of this ruling.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 54-10
Income Tax Assessment Act 1997 Section 54-25.
Income Tax Assessment Act 1997 Section 54-30.
Income Tax Assessment Act 1997 Section 54-45.
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Assessable income
Assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year, which includes compensation or insurance payments they receive for loss of income.
Structured settlements
A structured settlement is the result of an agreement between the parties to a personal injury case. A personal injury case may arise from medical negligence, sporting accidents, motor vehicle accidents and public liability or product liability. The parties to the case will generally be you or your legal personal representative (for example, a trustee or a person with your general power of attorney), the defendant (who is the person or organisation you are seeking compensation from), and in most cases the defendant's insurer.
A structured settlement will enable you to take all or part of your personal injury compensation in the form of tax-exempt or tax-free periodic payments, rather than a single immediate lump sum payment. Once a structured settlement has been arranged you can't change it or cash it out for a lump sum.
Components of a structured settlement
There can be several components of a structured settlement. These components must satisfy certain conditions to be eligible for the tax exemption.
Compulsory component
A structured settlement must include one or more personal injury annuities that together will provide you with a minimum level of monthly payments for as long as you live. An annuity is a financial product that is usually provided by life insurance companies and will provide regular payments to a person. Personal injury annuities must satisfy certain conditions. The personal injury annuity component is compulsory for all tax-exempt structured settlements.
If you have a structured settlement, the defendant or their insurer must buy you a personal injury annuity that will provide you with tax-free monthly payments for as long as you live. You cannot buy the annuity yourself.
In your case, the payment you received is not considered to be a structured settlement as it does not contain the compulsory component being a personal injury annuity and part of the payment you received is for loss of income.
The lump sum component you received under the assistance program for loss of income is considered to be income and is fully assessable. Therefore, you will need to include this amount in the relevant income tax return.
The two other components of this payment are not assessable.