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Edited version of your written advice
Authorisation Number: 1051307664056
Date of advice: 29 November 2017
Ruling
Subject: Interim compensation payments from motor vehicle accident
Question 1
Are the interim compensation payments you have received resulting from a motor vehicle accident assessable income?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
You were involved in a motor vehicle accident which left you hospitalised.
You lodged a claim with the CTP regulator who then passed the claim onto the allocated CTP insurer.
The insurer advised that you could apply for interim payments until such time that the claim has been finalised.
You have received interim payments from the insurer.
These payments will come out of the pool of money allocated to you for your claim representing past economic loss, past special damages and past care and assistance.
You have signed Deed of Interim payment documents to have the interim payments released to you.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 section 6-15
Income Tax Assessment Act 1997 section 10-5
Income Tax Assessment Act 1997 section 118-37(1)(a)
Reasons for decision
Your assessable income includes income according to ordinary concepts, which is called ordinary income (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)).
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.
You have received interim payments as compensation for an injury you have suffered. You have not earned this payment as it does not directly relate to services performed. The payments are also one off payments and do not have an element of recurrence or regularity. Although the payment can be said to be expected, and perhaps relied upon, this expectation arises from the claim made with the CTP insurer in relation to the personal injury resulting from the accident, rather than from a relationship to personal services performed.
The payments you have received does not meet the characteristics of ordinary income, so therefore is not considered to be ordinary income and not assessable under subsection 6-5(2) of the ITAA 1997.
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.
However, paragraph 118-37(1)(a) of the ITAA 1997 disregards a capital gain made from a CGT event where the amount relates to compensation or damages received for any wrong, injury or illness you suffer personally. As the compensation payment is for an injury you have suffered, it is disregarded under paragraph 118-37(1)(a) of the ITAA 1997.
The payments you have received are capital in nature, however as any capital gain that you made will be disregarded under paragraph 118-37(1)(a) of the ITAA 1997 you do not need to include the payments in your assessable income.