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Edited version of your written advice
Authorisation Number: 1012904870851
Date of advice: 5 November 2015
Ruling
Subject: Income protection payments
Question
Are the monthly payments you receive under an income protection policy assessable income?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
You sustained an injury in 20XX.
As a result of this injury, you were no longer able to perform the duties required of the position in your employment.
From 20YY, you have been receiving a monthly benefit payment under an income protection policy from an insurer as a Total Disability Payment.
You are eligible to receive this payment for a total of X months.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Based on case law, it can be said that ordinary income generally includes receipts that:
• are earned
• are expected
• are relied upon, and
• have an element of periodicity, recurrence or regularity
Payments of salary or wages, including payments made under an insurance policy that replaces salary or wages, are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997.
An amount paid to compensate for loss generally acquires the character of that for which it is substituted (FC of T v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; 10 ATD 82). Compensation payments which are paid to substitute income have been held by the courts to be income under ordinary concepts (F C of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142; Tinkler v. FC of T (1979) 10 ATR 411; 79 ATC 4641; Case Y47 (1991) 22 ATR 3422; 91 ATC 433).
In your case, as you cannot work due to your injury, you are receiving monthly benefits under an income protection policy. The purpose of this policy is to provide you with income in the event of you being unable to work. The payments are expected and relied upon. They also have an element of periodicity, recurrence or regularity.
As the payments you are receiving from the insurer are intended to replace your income, it follows that the income protection policy payments are assessable under subsection 6-5(2) of the ITAA 1997.