Edited version of your written advice

Authorisation Number: 1012940071570

Date of advice: 21 January 2016

Ruling

Subject: Compensation payments

Question 1

Is the loss of earnings grant you received assessable income?

Answer

Yes

Question 2

Is the special assistance grant you received assessable income?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2016

The scheme commenced on:

I July 2015

Relevant facts and circumstances

You were the victim of an act of violence.

You later attended a police station to provide a victim impact statement in relation to the incident.

Subsequently, you lodged an application for financial assistance from a government body.

A 'notice of decision to grant assistance' was issued to you, advising you were granted amounts with respect to the following:

• Loss of earnings, and

• Special assistance

The notice states these grants were made to assist you and to recognise you have been the victim of a violent crime.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5

Income Tax Assessment Act 1997 Subsection 6-10

Income Tax Assessment Act 1997 Subsection 118-37

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 taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has been held to include income from providing 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 or relied upon

• have an element of periodicity, recurrence or regularity

• replace income

Payments of salary and 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 ATR 443; 10 ATD 82). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts (FC 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).

Taxation Determination TD 93/58 outlines the circumstances under which the receipt of a lump sum compensation/settlement payment is assessable as ordinary income. The determination states that where the compensation payment is for loss of income, the amount is assessable as ordinary income. Where a portion of a lump sum payment is identifiable and quantifiable as income, that portion of the payment will be assessable.

In your case, your loss of earnings payment 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 in the year it is received.

The payment you received for special assistance is considered to be capital in nature and is not assessable as ordinary income.

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, for example capital gains.

Section 118-37 of the ITAA provides that a capital gain or loss relating directly to compensation or damages you receive for any wrong, injury or illness to you personally, is disregarded.

It follows that the special assistance payment is not considered as assessable income and will not need to be declared in your tax return.