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Edited version of your written advice
Authorisation Number: 1051376435509
Date of advice: 22 May 2018
Ruling
Subject: Lump Sum Insurance Payment
Question 1
Is your lump sum payment assessable income?
Answer
No
Question 2
Is your lump sum payment considered a capital gain?
Answer
No
This ruling applies for the following period:
Period ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Your employer pays and provides income insurance for their employees.
A payment is an option under the plan in certain circumstances.
This is a one off lump sum payment for persons insured under the insurance policy who are diagnosed with a specified condition.
You were diagnosed with a specified condition.
The amount was paid to your employer and then to you.
You were taxed on the payment to you and received a net sum from your employer.
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 118-37
Reasons for decision
Detailed reasoning
Subsection 6-5(2) of the ITAA 1997 states that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Ordinary income is income according to ordinary concepts which is not specifically defined in the legislation.
However, characteristics of ordinary income that have evolved from case law include receipts that:
● are earned
● are expected
● are relied upon, and
Payment for personal services, whether received in the capacity of an employee or otherwise in connection with employment or other personal services income is income according to ordinary concepts. Similarly, any payment (for example compensation) to replace income is also considered to be income for ordinary concepts.
You have received a lump sum payment for personal illness and not for loss of income.
The lump sum payment received is therefore not income according to ordinary concepts and not assessable under section 6-5 of the ITAA 1997.
Question 2
Summary
Your lump sum payment does not give rise to a CGT event.
Detailed reasoning
Where an amount of income is not ordinary income it may be included in a taxpayer’s assessable income under section 6-10 of the ITAA 1997. This income is called statutory income and is made assessable by a specific provision of the taxation legislation.
Section 118-37 of the ITAA 1997 specifically excludes compensation or damages received for any wrong, injury or illness you or a relative suffers personally. Thus, the lump sum payment you received is not statutory income and no capital gain will occur.