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Edited version of private advice
Authorisation Number: 1052162721046
Date of advice: 12 September 2023
Ruling
Subject: Lump sum payment and Medicare levy surcharge
Question 1
Can the redemption payment received from X in lieu of regular income support, be taxed at a lower rate over a number of years?
Answer
No.
Question 2
Can you receive an exemption from paying the Medicare levy surcharge?
Answer
No.
This ruling applies for the following period:
For the income year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
Several years ago, you suffered a workplace injury and received compensation paid from X.
In the income year ended DDMMYYYY you received gross payments of $X that was made up of multiple components including a lump sum redemption payment in relation to future income support.
In relation to your entitlement to future income support, you elected to receive a lump sum redemption payment rather than periodic payments.
In the prior income year ended DDMMYYYY you received gross payments of $X.
Your tax agent has estimated that a Medicare levy surcharge (MLS) will be calculated on your YYYY notice of assessment as 1.5% of your taxable income for the full 365 days in the year.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 61-575
Income Tax Assessment Act 1936 section 159ZR
Reasons for decision
The redemption payment you received in lieu of regular income support is considered to be ordinary income, and included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) in the income year in which it is received.
The current tax legislation provides tax offsets for eligible lump sum payments in arrears and Medicare levy surcharge (MLS) (lump sum payments in arrears) within the meaning contained in section 159ZR of the Income Tax Assessment Act 1936 and section 61-575 of the ITAA 1997.
There is no equivalent tax offset or any other income tax or MLS concession for a lump sum payment relating to a redemption of future income that would apply to your circumstances.