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Edited version of your written advice
Authorisation Number: 1051374429952
Date of advice: 23 May 2018
Subject: Lump sum payment, total permanent disability
Question 1
Is the lump sum payment received for Total Permanent Disability (TPD) assessable as ordinary income under section 6-5(2) of the Income Assessment Act 1997 (ITAA 1997)?
Answer
No
After considering the circumstances and the relevant factors the lump sum payment received is not considered ordinary income. Section 6-10(2) of ITAA 1997 states amounts that are not ordinary income, but are included in assessable income by another provision, are called statutory income. Lump sum payments are generally capital in nature and are potentially taxable under the capital gains tax provisions of the ITAA 1997.
Question 2
Is the Capital Gain on the lump sum payment disregarded under section 118-37(1)(b) of the ITAA 1997?
Answer
Yes
After considering the circumstances and the relevant factors, we accept that capital gain is disregarded on the lump sum payment received for Total Permanent disability claim.
We conclude that the lump sum payment received is not assessable income.
This ruling applies for the following period:
30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The deceased was employed by xxxx as a plant mechanic xxxx.
The deceased applied for permanent residency in Australia on xxxx but the application was declined on xxxx.
The deceased applied for Migration Review on xxxx.
The deceased ceased work on or about xxxx and was diagnosed with xxxx.
The deceased made a claim for TPD Benefit on xxxx.
The deceased’s claim was declined on xxxx on the basis that the Deceased was not eligible for cover under the policy as he was not a permanent resident.
As a result of Migration Review application on xxxx The Department of Immigration granted permanent residency to the deceased.
The deceased passed away xxxx.
On xxxx the deceased’s xxxx Personal Representative of the Estate lodged a claim for the deceased’s TPD entitlement.
On xxxx agreement by all parties to resolve and settle the claim for TPD.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10(2)
Income Tax Assessment Act 1997 Section 118-37(1)(b)