Edited version of private advice

Authorisation Number: 1052330706982

Date of advice: 14 November 2024

Ruling

Subject: Lump sum in arrears offset

Question

Are you eligible to use the lump sum in arrears offset in relation to the payment received in the relevant financial year?

Answer

Yes.

Based on the information provided to the Commissioner you are entitled to the Lumpsum in arears offset.

An individual who receives certain assessable lump sum payments containing an amount that accrued in earlier income years may be entitled to a lump sum payment in arrears (LSPIA) tax rebate (or tax offset) under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936).

The tax offset is intended to overcome the problem of the lump sum attracting more tax in the year of receipt than would have been payable if the payment had been taxed in each of the years in which it accrued. The tax offset is broadly calculated as the difference between the extra amount of tax payable in the year of receipt because of the lump sum and the amount of tax that would have been payable if the lump sum had been taxed as it accrued.

Section 159ZRA of the ITAA 1936 allows a lump sum payment in arrears tax offset where the taxpayer's assessable income in a year of income includes one or more 'eligible lump sums'.

An 'eligible lump sum' is defined as a lump sum payment of 'eligible income' received on or after 1 July 1986 that is included in the assessable income of the taxpayer and accrued, in whole or in part, in an earlier year or years of income (subsection 159ZR(1) of the ITAA 1936).

'Eligible income' is defined in subsection 159ZR(1) of the ITAA 1936 to mean certain specified types of income. The definition includes compensation, sickness, or accident payments.

Paragraph 159ZR(1)(c) of the ITAA 1936 includes in this definition payments covered by section 12-80 or section 12-120 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Section 12-80 in Schedule 1 to the TAA 1953 applies to any payment that is:

•         a superannuation income stream; or

•         an annuity.

The payment you received as part of the Class action meets the definition of eligible income and you are entitled to the LSPIA because it is an annuity.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You have been receiving a pension from Country Z relating to your spouse.

You received a lump sum payment in arrears in the relevant income year.

The amount was a backdated payment of previously unpaid spouse pension as determined under a class action.

Your spouse died a number of years ago.

Your spouse previously worked as a professional in Country Z.

The lump sum received by you covers the years that you have been receiving this pension since your spouse's death.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 159ZR

Income Tax Assessment Act 1936 section 159ZRA

Taxation Administration Act 1953 section 12-80