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Edited version of private advice
Authorisation Number: 1052194489764
Date of advice: 20 November 2023
Ruling
Subject: Assessable income - crisis benefit payment
Question
Is the lump sum payment of $XXX under crisis benefit from income protection subject to tax?
Answer
No. In your case the lump sum crisis recovery benefit payment is for compensation due to an illness or injury. The one-off lump sum payment is not income according to ordinary concepts and is not assessable under section 6-5 of the Income Tax assessment Act 1997 (ITAA 1997). The specific benefit payment was made under an optional extra component, which was paid when certain medical events happened. Eligibility for the crisis recovery payment didn't depend on loss of income or inability to work. In addition, the payment bears none of the characteristics of ordinary income as it lacks any element of periodicity, recurrence, or regularity.
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income may be assessable under another provision called statutory income. Receipt of a lump sum payment may give rise to a capital gain (statutory income).
In your case, the payment was made to you for compensation for an illness you personally suffered. Therefore, any capital gain or capital loss arising from a CGT event will be disregarded under subparagraph 118-37(1)(a)(i) of the ITAA 1997 and the payment will not be assessable as statutory income.
As the lump sum payment is not assessable as either ordinary or statutory income, you are not required to include the amounts in your assessable income.
This ruling applies for the following period:
Period ending 2024
The scheme commenced on:
1 July 2023
Relevant facts and circumstances
There was an optional crisis benefit included in your income protection policy.
You had a medical procedure and were released in XXXX 20XX.
The crisis benefit of XXXX was approved for 20XX and 20XX.
The crisis benefit was paid on XXXX 20XX.
You met the condition of release and were paid a lump sum crisis benefit payment.
Relevant legislative provision
Income Tax Assessment Act 1997 Subsection 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Paragraph 118-37 (1)(a)(i)