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Edited version of your private ruling
Authorisation Number: 1012633032309
Ruling
Subject: Mining Compensation
Question 1
Will the compensation payments be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
Question 2
Will any capital gain that arises out of the compensation payments be disregarded under section 118-37 of the ITAA 1997?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
1 July 2013
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.
You own and live in a property located close to the mining operation of a company. You have not previously used your property to derive income.
You have been asked by the company to vacate your house and property for a set period due to the mining activities.
You have entered into an agreement with the company where the company will provide you compensation.
No mining activities will be conducted on the property itself.
Clause x of the agreement provides that you are being compensated for private nuisance from the dust, noise and personal inconvenience caused by the activities of the company.
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
Taxation Ruling TR 95/35 provides the Commissioner's view on the taxation implications of compensation receipts. Accordingly, to determine the tax treatment of a compensation payment a 'look through' approach is adopted to identify the relevant asset to which the compensation relates.
Having regard to your full circumstances, it is accepted that you have been compensated primarily for private nuisance from dust, noise and personal inconvenience caused by the activities of the mining company.
In this instance, adopting the 'look through' approach finds that the relevant asset to which the compensation relates is the right to seek compensation and not the underlying property.
Consequently, as the compensation payments relate to the disposal of a capital asset (the right to seek compensation) and are not related to your income earning activities, that's is, they are not received in compensation for the loss of income, they will not be assessable income under section 6-5 of the ITAA 1997.
Normally, a payment for surrendering the right to seek compensation would be assessable as a capital gain however, in this instance, the right relates to a wrong, injury or illness which you have suffered personally and will therefore be disregarded under paragraph 118-37(1)(b) of the ITAA 1997.