Edited version of private advice

Authorisation Number: 1051807847771

Date of advice: 23 February 2021

Ruling

Subject: Assessable income - monthly payments

Question

Are the monthly payments assessable under section 6-5 of the Income Tax Assessment Act 1997?

Answer

No. Based on the information provided you were eligible for the Permanent Total Disability benefit and had opted to receive the Temporary Total Disability Benefit monthly payments before receiving the balance of the Loss of Licence benefit as a lump sum.

The monthly payments are viewed as being of the nature of instalments of capital, being paid in advance of you receiving the lump sum capital amount, which will be reduced by the value of the monthly payments. Therefore, they are not assessable as ordinary income under section 6-5 of the ITAA 1997 in accordance with the principles contained in Taxation Ruling IT 2230.

This ruling applies for the following period

1 July 20XX to 30 June 20XX.

Relevant facts and circumstances

You were employed by Company X and received your salary on a fortnightly basis.

During your employment Company X paid for the cost of your membership in a fund (the Fund) offered by Company A to protect the Fund's members under specified circumstances and to provide the members with benefits which included two types of benefits as follows:

•         Temporary Total Disability, consisting of a monthly benefit payable to the member; and

•         Permanent Total Disability, which allowed a monthly benefit payment to be paid for a period of time, to be followed by a single lump sum payment reduced by the monthly payments.

You have not paid any amounts in relation to the Fund contribution costs and have not claimed any deductions in relation to it in previous income years.

You experienced health issue symptoms which automatically included you under the specified circumstances of the Fund.

After several months you were officially diagnosed with a medical condition which resulted in the Fund's specified circumstances continuing to apply.

Your medical practitioner confirmed that you had met the relevant conditions for the Permanent Total Disability benefit offered by the Fund.

You received normal salary payments from Company X for several months and were then on leave without pay for several months until you were made redundant.

You made a claim with the Fund and elected to receive the temporary payments in accordance with the option provided in relation to the Permanent Total Disability benefits, being the monthly payments.

The monthly payments commenced around the time you were officially diagnosed with your medical condition and will continue until 20XX when you will receive the lump sum amount, less the value of the monthly payments.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5