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Edited version of your written advice
Authorisation Number: 1012912776559
Date of advice: 17 November 2015
Ruling
Subject: Victims of crime compensation payment
Question and answer:
1. Will you be required to include a victim of crime compensation payment for medical expenses and damage to clothing as part of your assessable income?
No.
2. Will you be required to include a victim of crime compensation payment for loss of income as part of your assessable income?
Yes
This ruling applies for the following period
Year ended 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts
You received a victim of crime compensation payment.
The payment you received was compensation for suffering caused by being a victim of crime.
Relevant legislative provisions
Section 6-5 of the Income Tax Assessment Act 1997
Section 6-10 of the Income Tax Assessment Act 1997
Section 118-37(1)(b) of the Income Tax Assessment Act 1997
Reasons for decision
Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year.
Compensation for loss of income
An amount paid to compensate for loss generally acquires the character of that for which it is substituted (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 10 ATD 82; (1952) 5 AITR 443). Compensation payments that substitute for income have been held by the courts to be income under ordinary concepts (Federal Commissioner of Taxation v. Inkster (1989) 24 FCR 53; 89 ATC 5142, (1989) 20 ATR 1516). The payment retains the character of ordinary income even though paid as a lump sum.
In your case, you were a victim of a crime. As a result of this crime, you were awarded a lump sum compensation amount. This included an amount for loss of wages.
The compensation amount for loss of salary and wages is considered to be ordinary income as it was paid for loss of wages and it will be assessable under subsection 6-5(2) of the ITAA 1997.
Medical expenses and damage to clothing
Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision.
The payment you received for medical expenses and damage to clothing is a capital payment which is not assessable to you under either the ordinary or statutory provisions.
Capital Gains Tax
Compensation where the amount relates to compensation or damages a taxpayer received for any personal wrong, injury or illness is exempt under paragraph
118-37(1) (b) of the ITAA 1997.