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Edited version of private advice
Authorisation Number: 1051930467325
Date of advice: 10 December 2021
Ruling
Subject: Assessable income
Question
Is a lump sum payment assessable income?
Answer
No.
Based on the information provided to the Commissioner the lump sum benefit you received is not assessable under Section 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) as it is not ordinary income.
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.
Amounts received in respect of personal injury/illness which is not for reimbursement of medical expenses, or direct compensation for loss of income will usually be capital in nature and are potentially taxable as statutory income under the capital gains tax provisions of the ITAA 1997.
However, paragraph 118-37(1)(a) of the ITAA 1997 disregards a capital gain made from a CGT event where the amount relates to compensation or damages received for any 'wrong, injury or illness you ... suffer in your occupation'. Therefore, any capital gain made from the CGT event happening to your right to seek compensation is disregarded under paragraph 118-37(1)(a) of the ITAA 1997. It is thus not statutory income.
Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary or statutory income it is not assessable income. Consequently, no part of the gross amount you were entitled to receive the benefit is included in your assessable income.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You entered into a policy several years ago.
The trauma benefit payment under this policy is an amount paid per month.
In the event of a listed trauma, a payment period of the monthly benefit will apply in arrears.
A trauma event occurred.
A lump sum payment was received by you a few months after the event.
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
Income Tax Assessment Act 1997 section 118-37