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Edited version of your written advice
Authorisation Number: 1051361635859
Date of advice: 17 April 2018
Ruling
Subject: Assessability of trauma recovery benefit payments
Question 1
Are a series of six payments in connection with a trauma recovery benefit policy paid as an initial lump sum then final payment assessable income?
Answer
No
We agree the evidence you have put forward and confirm that the payment of benefits you received under the trauma feature of your Group Salary Continuance Plan is not ordinary income and it is not statutory income. Consequently, it is not assessable income. As the payment was received as compensation for an injury or illness you suffered personally, any capital gain or loss is disregarded.
This ruling applies for the following periods
Year ended 30 June 2017
The scheme commenced on
1 July 2016
Relevant facts and circumstances
You were diagnosed with a serious illness.
Your employer has a Group Salary Continuance (GSC) Plan.
You made a claim under this plan and you were paid a trauma recovery benefit.
The claim was settled by the company.
The payment of this benefit amount was paid in two lump sums.
Tax was withheld and a PAYG payment summary received.
You had some time off work for treatment using accumulated sick leave entitlements from your employer and you returned to work.
You did not have six months off work nor was that required to secure the payments.
The policy document states that the insured member’s monthly benefit will be paid in advance each month until the earlier of the end of the payment period of six months for that trauma recovery event.
It also confirms that the benefit is payable whether or not the insurer member is disabled (i.e. working or not working) and further the benefit is payable because of a Trauma Event as defined in the document.
During the income year you also made a claim under a separate policy you held. The claim represented a claim under a Crisis Recovery Standalone Benefit and was made because of your diagnosis.
The Crisis Recovery Benefit claim was settled and a lump sum payment made to you. No tax was withheld and the claim represented the total sum insured. The product disclosure document for defines that the amount for the benefit is a lump sum made because of a diagnosis of serious illnesses per page 30 crises events.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-1(1)
Income Tax Assessment Act 1997 Subsection 6-15(1)
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 10-5
Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)