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Edited version of private advice
Authorisation Number: 1051990178374
Date of advice: 2 June 2022
Ruling
Subject: Assessable income - lump sum insurance payment
Question
Will the lump sum Permanent Disablement benefit be included in your assessable income?
Answer
No.
The Permanent Disablement benefit is intended to compensate the policy owner for the loss of earning capacity. The benefit is a capital receipt and will not be assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
Section 118-37 of the ITAA 1997 disregards a capital gain where the capital gains tax (CGT) event happens in relation to compensation or damages you receive for any wrong, illness or injury suffered. Therefore, no CGT consequences will arise.
In summary, the lump sum Permanent Disablement benefit will not be included in your assessable income as it is not ordinary income or statutory income.
This ruling applies for the following periods:
Year Ending 30 June 20XX
Year Ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You had an accident that resulted in a serious medical condition.
You are currently receiving monthly income protection benefits under an insurance policy.
Doctors do not expect any positive rehabilitation or possibility of returning to work.
The insurance provider has advised you are eligible to exercise the permanent disablement benefit option within your policy and obtain a lump sum benefit amount.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5.
Income Tax Assessment Act 1997 section 118-37.