Edited version of private advice

Authorisation Number: 1052386796629

Date of advice: 17 April 2025

Ruling

Subject: Compensation payment - lump sum

Question 1

Is the lump sum compensation payment you received due to the death of your spouse included in your assessable income?

Answer 1

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

Your late spouse suffered a service-related death.

You have been in a relationship with your late spouse since 20XX, and you are caring for their children.

For this reason, you have met the criteria for a Country A survivor's grant payment, as outlined in a letter addressed to you from the relevant authority dated in mid to late 20XX (the letter).

The letter outlines that you have also met the criteria for weekly compensation payments.

However, you have advised that you will not be receiving any weekly compensation payments.

The start date for your entitlement to the survivor's grant payment was in mid-20XX.

In mid 20XX, a short time after the start date for your entitlement, you received the lump sum survivor's grant paid by the relevant authority in Country A.

The survivor's grant is not taxable in Country A.

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 10-5

Income Tax Assessment Act 1997 paragraph 118-37(1)(a)

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Detailed reasoning

The assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Ordinary income is income according to ordinary concepts which is not specifically defined in the legislation.

However, characteristics of ordinary income that have evolved from case law include receipts that:

•                are earned

•                are expected

•                are relied upon, and

•                have an element of periodicity, recurrence or regularity.

Payment for personal services, whether received in the capacity of an employee or otherwise in connection with employment or other personal services income is income according to ordinary concepts under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Similarly, any payment (for example compensation) to replace income is also considered to be income for ordinary concepts.

Where an amount of income is not ordinary income, it may be included in a taxpayer's assessable income under section 6-10 of the ITAA 1997. This income is called statutory income and is made assessable by a specific provision of the taxation legislation.

Section 10-5 of the ITAA 1997 lists those provisions.

Included in this list is section 102-5 of the ITAA 1997 which deals with capital gains tax.

Where an amount is not ordinary income or statutory income it is not assessable income, and you do not have to pay tax on it.

Lump sum compensation payment (survivors grant)

The lump sum compensation payment (survivors grant) you received due to the death of your spouse is not ordinary income under section 6-5 of the ITAA 1997. The payment is not a payment for personal services and does not have any of the characteristics of ordinary income.

Despite this, compensation payments may still be statutory income (under the Capital Gains Tax provisions) and assessable.

However, paragraph 118-37(1)(a) of the ITAA 1997 disregards a capital gain made where the amount relates to compensation or damages you receive for any wrong, injury or illness you or your relative suffers personally.

The term 'relative' is defined to include a spouse under section 995-1 of the ITAA 1997.

Therefore, the lump sum compensation payment you received for the death of your spouse is not statutory income, does not form part of your assessable income, and is not subject to tax.