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Edited version of private advice
Authorisation Number: 1052255616274
Date of advice: 27 May 2024
Ruling
Subject: Assessable income - insurance payments
Question 1
Are the insurance payments assessable income under either section 6-5 or section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
The insurance payments paid under the insurance policy are not assessable income as the purpose of the payments is to cover you if you are diagnosed with a qualifying medical condition. The payments do not replace income and are not connected to your employment or services rendered by you.
Question 2
Does a capital gains tax (CGT) event occur on receipt of the insurance payments?
Answer
Yes.
You had a right under the policy to claim the insurance payments which is an intangible CGT asset. CGT event C2 occurred, and that right was discharged when the insurer accepted the claim and paid out the insurance payments.
Question 3
Can the capital gain or loss on receipt of the insurance payments be disregarded under section 118-37 of
ITAA 1997?
Answer
Yes.
The capital gain or loss is disregarded under subsection 118-37(1) as the insurance payments provided compensation for injury or illness you suffered personally.
This ruling applies for the following period:
30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You took out an income protection insurance policy.
The insurance policy had an optional benefit where a monthly benefit is paid if you suffer a specific medical condition. You were also entitled to trauma payments under the policy if you suffered a specific medical event.
The receipt of the optional benefit and trauma payments is not contingent on whether you are able to work.
You were diagnosed with a specified medical condition, and you made a claim under your insurance policy.
The insurance company accepted your claim because you suffered a specific medical condition covered by the policy and you received a trauma insurance payment.
You also received the optional benefit payment.
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 15-2
Income Tax Assessment Act 1997 section 102-5
Income Tax Assessment Act 1997 section 118-37