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Edited version of private advice
Authorisation Number: 1012636183761
Ruling
Subject: Tree Insurance Proceeds
Question 1
Are the insurance proceeds you received for the destruction of your interest in a forestry scheme assessable income?
Answer
Yes.
Relevant facts and circumstances
You invested in a forestry scheme. The trees were destroyed by fire. You received an insurance payment for the trees destroyed by the fire.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Section 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states your assessable income includes income according to ordinary concepts, which is called ordinary income.
The word ordinary is not defined in taxation legislation however its meaning is derived from various court cases. An important concept of whether an amount of income is ordinary depends on the source or origin of that income. Whether an amount of income is from a certain business activity depends on whether that activity is the source or origin of that income based on the ordinary meaning of the word 'from' (see BHP Petroleum (Timor Sea) Pty Ltd & Ors v. Minister for Resources (1994) 49 FCR 155; (1994) 28 ATR 16) or whether that income is an incident or event of carrying on that activity (see Kidston Goldmines Ltd v. FC of T (1991) 30 FCR 77; 91 ATC 4538; (1991) 22 ATR 168).
The insurance proceeds received is ordinary income under section 6-5(1) of the ITAA 1997 and needs to be declared in your income tax return.