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Edited version of your written advice
Authorisation Number: 1051480460189
Date of advice: 5 February 2019
Ruling
Subject: Assessable income
Question 1
Is the payment you received as compensation for lost wages, assessable income?
Answer
Yes
Question 2
Is the amount of money you were reimbursed for training minor items, assessable income?
Answer
No
This ruling applies for the following period
Year ending 30 June 2019
The scheme commenced on
1 July 2018
Relevant facts
You received a compensation payment for lost wages from a government agency.
You received a reimbursement for minor items relating to training.
You received the payment in the 2019 income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Ordinary income has been held to include income from providing 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 or relied upon
● have an element of periodicity, recurrence or regularity
● replace income.
A compensation amount normally assumes the nature of that which it is designed to replace.
Payments that replace salary or wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997 (Federal Commissioner of Taxation v. Inkster (1989) 24 FCR 53; 89 ATC 5142, (1989) 20 ATR 1516)).
In your case you received a payment for lost wages from a government agency in the 2019 income year.
The payment from the government agency relates to lost wages and has the characteristics of ordinary income and the payment is assessable under subsection 6-5(2) of the ITAA 1997.
Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income.
Paragraph 42 of the ruling states that income from employment would normally be assessable on a receipts basis. Salary, wages or other employment remuneration are assessable on receipt even though they relate to a past or future income period.
Therefore, although part of the payment that you received from the government agency relates to a past financial year, it is assessable in the year you received it which is the 2019 income year.
You must include in your 2019 tax return the total sum you received for the lost wages.
The amount paid to you as a reimbursement for minor items in relation to training, is not assessable and does not need to be included in your 2019 tax return.