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Edited version of your written advice
Authorisation Number: 1051236771782
Date of advice: 13 June 2017
Ruling
Subject: Compensation payment
Question
Is a compensation payment of $X,XXX made to you regarded as assessable income?
Answer
No
Taxation Determination TD 93/58 explains the circumstances in which a lump sum compensation/settlement payment is assessable. You have been offered compensation for permanent impairment and non-economic loss. It is considered that no component of the amount you received was received to compensate you for loss of income. Therefore, your compensation is not assessable under section 6-5 of the ITAA 1997.
Capital gains tax
Taxation Ruling TR 95/35 deals with the capital gains treatment of compensation receipts. Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(a) of the ITAA 1997 disregards payment or receipts for capital gains purposes where the amount relates to compensation or damages a person receives for any personal wrong, injury or illness. The lump sum you will receive is considered to be exempt from CGT under paragraph 118-37(1)(a).
Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary or statutory income it is not assessable income. Therefore no part of the settlement amount is required to be included in your income tax return.
This ruling applies for the following period
Year ended 30 June 2017
The scheme commenced on
1 July 2016
Relevant facts and circumstances
You had an incident at work and sustained injuries which will be with you for life.
You lodged a compensation claim and received an amount for permanent impairment and non-economic loss.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5.
Income Tax Assessment Act 1997 Subsection 6-15(1).
Income Tax Assessment Act 1997 Paragraph 118-37(1) (a).