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Edited version of private advice
Authorisation Number: 1052097595530
Date of advice: 17 March 2023
Ruling
Subject: Lump sum - trauma payout
Question
Is the payment that you received from your insurance company taxable?
Answer
No.
It is accepted that the payment you received from your Trauma Insurance Policy is not ordinary income and it is not statutory income. Therefore, it is not assessable income.
The Trauma cover pays you or your family a lump sum if you are diagnosed with one of a list of defined serious medica conditions. It is not paid to replace your income. Therefore, the payment you received upon your diagnosis is considered to be a capital payment. Subparagraph 118-37(1)(a)(ii) of the Income Tax Assessment Act 1997 would then operate to disregard the capital gain or loss made on the payment. This results in the payment being non-assessable.
Further information about income you must declare can be found by searching 'QC 31915' on ato.gov.au
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commenced on:
XX/XX/20XX
Relevant facts and circumstances
You held a Trauma Insurance Policy with an Insurance Company.
The Trauma cover would pay you a lump sum payment if you were diagnosed with one of a list of defined serious medical conditions or undergo certain medical procedures.
You were diagnosed with a condition that is included within the list of defined medical events.
In late 20XX you made a claim against the policy.
Your claim was accepted and the Insurance Company made a payment to you for the amount of $XXX.
You hold a separate income protection policy.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-1
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 subsection 6-15(1)
Income Tax Assessment Act 1997 subparagraph 118-37(1)(a)(ii)