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Edited version of private advice
Authorisation Number: 1012650323283
Ruling
Subject: Lump Sum payment
Question 1
Will any part of the payment you received be treated as assessable income?
Answer
No
Question 2
Will any part of the payment you received be assessable under the capital gains tax (CGT) provisions?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You were a primary victim of an act of violence consisting of a series of related acts.
You were provided a recognition payment to recognise the trauma suffered as a direct result of a series of act of violence.
You received a payment in the sum of $10,000 from a State Government.
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
Subsection 6-5(2) of the 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.
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income.
Paragraph 118-37(1)(b) of the ITAA 1997 disregards a capital gain made from a CGT event where the amount relates to compensation or damages received for any 'wrong, injury or illness you suffer personally'.
Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary or statutory income it is not assessable income.
In your case
The lump sum payment you received is not earned by you as it does not directly relate to services performed. Rather payment relates to personal circumstances that occurred during your life. The payment is also a one-off payment and thus does not have an element of recurrence or regularity. It is not considered ordinary income and is therefore not assessable under subsection 6-5(2) of the ITAA 1997.
CGT is disregarded because the payment relates to compensation for trauma you suffered. It is therefore not statutory income.
Consequently the lump sum payment you received is neither ordinary income nor statutory income as per subsection 6-15(1) of ITAA. Therefore no part of the amount you received should be included as assessable income.