| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012880663387
Date of advice: 18 September 2015
Ruling
Subject: Lump sum payment
Question
Is the lump sum you received assessable income?
Answer
No.
This ruling applies for the following period(s)
Year ended 30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
You are Australian resident for taxation purposes.
You are the sole beneficiary of your relative's estate.
Your relative suddenly passed away. Upon their passing you received a lump sum payment from an overseas life assurance company.
The amount you received is a one off payment.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 118-37
Income Tax Assessment Act 1997 Section 118-300
Income Tax Assessment Act 1997 Section 995-1
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income).
Ordinary income has generally been held to include three 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 amount you received is not income from rendering personal services, income from property or income from carrying on a business. It was also not earned, expected or relied upon and is a one-off payment and thus it does not have an element of recurrence or regularity.
The lump sum payment that you received is not considered to be ordinary income.
Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(b) of the ITAA 1997 disregards a capital gain where the amount relates to compensation or damages received for any 'wrong, injury or illness you or your relative suffer personally'.
'Relative' is defined under section 995-1 of the ITAA 1997 as:
• a person's spouse, or
• the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person or of that person's spouse, or
• the spouse of a person referred to in paragraph (b).
The lump sum payment was made to you as the beneficiary relative of the deceased and therefore, falls within the definition of a relative. The payment is directly related to the loss of your relative, and as such the payment will be exempt from CGT under paragraph 118-37(1)(b) of the ITAA 1997.
Also, section 118-300 provides for a CGT exemption for beneficiaries of life insurance policies.
As the lump sum death benefit you were paid is not ordinary income or statutory income it is not assessable income. Therefore no part of the lump sum amount you have received is required to be included in your income tax return.