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Edited version of your private ruling
Authorisation Number: 1012539404374
Ruling
Subject: Compensation payments
Question 1
Are the compensation payments you receive assessable income?
Answer
Yes.
Question 2
Are the compensation payments you receive excepted income?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
You are a minor and had an accident a few years ago and consequently you are receiving compensation payments.
These payments are paid on a monthly basis.
Tax is paid from these payments.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-5(2)
Income Tax Assessment Act 1997 paragraph 102AE(2)(a)
Income Tax Assessment Act 1997 subsection 102AF(1)
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 3 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.
The note in Taxation Determination TD 92/133 states that periodic payments made under accident or compensation legislation (e.g. section 59 of the Transport Accident Act 1986) to dependent children of deceased persons are considered to be a pension and are taxed at normal rates.
As you are paid a recurring payment in the form of a pension, the payments are assessable under subsection 6-5(2) of the ITAA 1997 as ordinary income.
Excepted income
Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) applies in calculating the tax payable in relation to the income of a minor. Special rates of tax are imposed on prescribed persons in respect of eligible assessable income.
A prescribed person is a person who is less than 18 years of age on the last day of the income year who is not in full-time occupation or within certain other specified categories (subsections 102AC(1) and 102AC(2) of the ITAA 1936).
You are under 18 years of age and you are not in full-time occupation or within one of the other specified categories, therefore you are a prescribed person.
Eligible assessable income is the assessable income of a prescribed person that is not excepted assessable income (subsection 102AE(1) of the ITAA 1936).
'Excepted assessable income' is defined in paragraph 102AE(2)(a) of the ITAA 1936 to include an amount which:
(a) is employment income or business income
Employment income is defined in subsection 102AF(1) of the ITAA 1936 where amongst other things it is to be read as a reference to:
(c) compensation, sickness or accident payments
Therefore the payments that you receive are excepted income under Division 6AA of the ITAA 1936 and will be subject to the resident tax rates for individual taxpayers.