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Edited version of private advice
Authorisation Number: 1051573026740
Date of advice: 5 September 2019
Ruling
Subject: Compensation for loss of licence
Question 1
Is the Benefit "non-assessable non-exempt income" pursuant to section 6-23 of the Income Tax Assessment Act 1997 (ITAA 1997) and subsection 23L(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
Yes
The payment of the premium of an insurance policy is a benefit of the employment of the employee.
Being a fringe benefit, the amount is not assessable income of the taxpayer under subsection 23L(1) of the ITAA 1936, and is non-assessable non-exempt income of the taxpayer under section 6-23 of the ITAA 1997.
Furthermore, the benefit is not an excluded fringe benefit under subsection 5E(3) of the FBTAA. Therefore, the benefit is a reportable fringe benefit.
Question 2
Is any capital gain resulting from the derivation of the Benefit disregarded pursuant to section 118-37 of the ITAA 1997
Answer
Yes
The proceeds of the policy are regarded as compensation, which was received due to an illness personally suffered by you. The capital gain from the policy is therefore disregarded under subsection 118-37(1)(a)(ii) of the ITAA 1997.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Pursuant to the contract of employment with your employer you were employed on a full-time basis in a training management role which required a licence. Under the contract you were entitled to an increase in your annual salary and on receipt of formal approval from the relevant regulatory authority (the Authority).
The employer would at your election:
· obtain under its collective arrangement a policy payable according to the policy's terms; or
· reimburse you for the cost of obtaining your own policy.
You elected not to obtain your own policy, but relied on the employer's agreement to acquire a policy for your benefit.
The employer obtained coverage under the Policy, from the Insurer for the following.
a) the loss of the insured person's licence results in a benefit in an amount dependant on the pilot's age and annual salary, and
b) the insured is also entitled to a further sum for "additional expenses" for the obtaining of independent financial advice.
In 2017 you suffered a medical injury (the Injury) and it became evident that you would be unable to retain your licence. The Authority indicated it was unwilling to issue the necessary certificate indicating the requisite medical clearance.
The Authority notified you of its final decision that it would not provide the necessary medical clearance and the insurer notified you that you were entitled to a benefit.
You then made a successful claim for your benefit.
Although you are no longer able to perform in your previous role, your employment has otherwise continued and you are still entitled to the same remuneration and other benefits that you were entitled to before the Injury.
You are able to maintain the currency of the qualifications required for your current role.
Relevant legislative provisions
Income Tax Assessment Act 1936 subsection 23L(1)
Income Tax Assessment Act 1997 section 6-23
Income Tax Assessment Act 1997 section 118-37