Edited version of private advice

Authorisation Number: 1051885293748

Date of advice: 16 August 2021

Ruling

Subject: Assessability of income received - victims of crime payment

Question

Is the victim of crime lump sum compensation payment that you received from the State Government assessable income?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You received a victim of crime lump sum compensation from the State Government. The payment was made specifically in recognition of the trauma suffered by you, a victim of an act of violence and the harm you suffered.

It was determined that you were a primary victim of an act of violence under the relevant State legislationand established eligibility for victim's support. You were a victim of assault, which resulted in physical injury and that this has caused you trauma and lasting damage.

There was no loss of income as a result of the assault and you did not take any time off from work.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely income from rendering 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

•         are relied upon

•         have an element of periodicity, recurrence or regularity.

An amount paid to compensate for loss generally acquires the character of that for which it is substituted (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82).

Taxation Determination TD 93/58 (TD 93/58) outlines the circumstances under which the receipt of a lump sum compensation or settlement payment is assessable as ordinary income. TD 93/58 states that where the compensation payment is for loss of income, the amount is assessable as ordinary income. Where a portion of a lump sum payment is identifiable and quantifiable as income, that portion of the payment will be assessable.

You were approved a payment payable under the relevant State legislationand is a payment specifically in recognition of the trauma suffered by a victim of an act of violence. You were a victim of assault, which resulted in physical injury and that this has caused you trauma and lasting damage. There was no loss of income as a result of the assault and you did not take any time off from work.

The payment was not earned by you as it does not relate to services performed however the payment was made specifically in recognition of the trauma suffered by you, a victim of an act of violence and the harm you suffered.

The payment is also a one off payment and thus it does not have an element of recurrence or regularity. Although the payment can be said to be expected, and perhaps relied upon, this expectation arises from the pain, suffering and medical treatment required resulting from the injury, rather than from a relationship to personal services performed. Accordingly, the lump sum payment is not ordinary income and is therefore, not assessable under section 6-5 of the ITAA 1997.

Capital gains tax (CGT)

Receipt of a lump sum payment may give rise to a capital gain (statutory income). However, paragraph 118-37(1)(b) of the ITAA 1997 disregards a capital gain where the amount relates to compensation or damages received for any 'wrong, injury or illness you or your relative suffer personally'.

The lump sum you received is a payment for victim's compensation as a result of an assault made on you and is considered received for a wrong, injury or illness you suffered personally. It is therefore considered to be exempt from CGT.

Conclusion

As the lump sum amount is not ordinary or statutory income, it is not assessable income. Therefore, the lump sum amount you received is not required to be included in your income tax return.