Edited version of your written advice

Authorisation Number: 1051487949052

Date of advice: 27 February 2019

Ruling

Subject: Assessable income - lump sum insurance payment received from a trauma benefit scheme

Question 1

Is any part of the lump sum trauma payment you received for compensation arising from your spouse’s medical illness assessable income?

Answer

No.

Question 2

Will any capital gains arising from the lump sum trauma payment you received for compensation arising from your spouse’s medical illness be disregarded?

Answer

Yes

Having considered your circumstances, the entire lump sum trauma payment you received for compensation arising from your spouse’s medical illness is not assessable income, nor is it an assessable capital gain. Further information on Compensation payments can be found by searching 'QC 51236' on ato.gov.au

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are the sole policy owner of a Trauma Insurance Policy (the policy).

Your spouse is the insured person listed in the policy.

A trauma benefit can be paid under this policy. This is a once off lump sum payment for persons insured under the insurance policy whom are diagnosed with a specified condition which is certified by a medical practitioner.

In late 20XX your spouse was diagnosed with a medical condition.

The PDS confirms that your insurer will pay the trauma benefit where the insured person has a specified medical event listed in the PDS for your type of cover, and an approved medical practitioner provides medical evidence to support the claim.

The medical condition suffered by your spouse is listed as a trauma covered by the policy, as confirmed in the PDS.

The insurer has assessed you as eligible to receive the trauma benefit as the policy owner, in terms with the policy document, as your spouse was medically diagnosed with a condition covered by the Trauma benefit insurance policy.

As per the policy, you were paid a lump sum.

Upon the diagnosis of your spouse’s medical condition, the Trauma benefit will only be paid once for an insured person. Once the benefit is paid, the Trauma benefit will cease for the insured person (your spouse). As such the insurer cancelled the policy effective from late 20XX, when your spouse was diagnosed with the medical condition.

However, the insurer continued to deduct your monthly premium. As such the insurer refunded this amount to you at the same time you received the trauma insurance payment. Despite this you are aware that this amount is not assessable income, and does not form part of the actual trauma lump sum payment. You also advise that the insurer only incorporated the refund of excess premiums into the amount you received for administrative purposes only.

As such, being the policy owner you were entitled to a lump sum payment related to the amount you were entitled to under the terms of the policy, and you received this amount into your bank account in early 20XX.

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(1)

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 104-25

Income Tax Assessment Act 1997 Paragraph 118-37(1)(a)

Income Tax Assessment Act 1997 Section 995-1