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Edited version of your written advice
Authorisation Number: 1012704292333
Ruling
Subject: Income - lump sum payments
Question 1
Is the payment you received in the 2014 financial year in respect of income relating to the relevant financial years able to be declared as assessable income for the relevent financial years?
Answer
No.
Question 2
Is the payment you received in the 2014 financial year in respect of income relating to the relevant financial years assessable income for the 2014 financial year?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You received a compensation payment in the 2014 financial year, relating to lost income for the relevant financial years.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 6-5
Reasons for decision
Income amounts are generally included in the calculation of a taxpayer's taxable income in the year in which they are received. Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) requires an amount of ordinary income to be brought to account as assessable income when it has been derived.
Taxation Ruling TR 98/1 considers the appropriate method of determining when income is derived under subsection 6-5(2) of the ITAA 1997 where income is earned in one tax year but received in another. Paragraph 42 of TR 98/1 states that salary and wages or other employment remuneration is assessable on receipts basis. This is irrespective of whether that income relates to a past or future income period. Therefore, a lump sum amount of employment related income in arrears will be included in a taxpayer's taxable income in the year in which it is received.
In your case, you received a lump sum in arrears payment in the 2014 financial year, in respect of income compensation relating to the relevant financial years. This should be included in your assessable income for the 2014 financial year under section 6-5 of the ITAA 1997.