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Edited version of private advice
Authorisation Number: 1052403484037
Date of advice: 02 June 2025
Ruling
Subject: Assessable income
Question 1
Is the lump sum included in assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer 1
No.
Based on the information provided to the Commissioner the lump sum does not meet the definition of ordinary income.
Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.
Other characteristics of 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.
The lump sum is a capital amount.
The lump sum is therefore not assessable income under section 6-5 of the ITAA 1997.
Question 2
Is any capital gain or loss you make due to receiving the lump sum disregarded?
Answer 2
Yes.
Based on the information provided to the Commissioner any Capital Gains Tax (CGT) payable on the lump sum is exempt from tax.
An exemption is provided under section 118-305 of the ITAA 1997 for any capital gain or loss made from a CGT event happening in relation to a right to an allowance, annuity or capital amount payable out of a fund or an asset of a fund.
Any CGT will be exempt on the lump sum.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The Deceased allegedly ceased work a number of years ago due to some serious medical conditions which made them unable to return to work.
A few years after they ceased worked, The Deceased submitted a claim seeking payment of a TPD benefit in respect of their medical conditions and situation.
Company Z held with the insurer an insurance policy with the life insured being The Deceased.
Company Z submitted the claim to the insurer for assessment.
After considering the entirety of the evidence before it, the insurer determined to decline the claim. Following an independent review of the evidence before it, Company Z determined to decline the claim.
The Deceased commenced proceedings in the District Court against Company Z & the insurer, claiming payment of a TPD benefit, costs, interests, and other relief.
Pursuant to a deed of release and without any admission of liability, Company Z & the insurer agreed to resolve the claim and proceedings and agreed to pay the Deceased a lump sum as a full and final settlement.
The Deceased incurred legal fees and in respect of the legal proceedings.
The Deceased received the net settlement amount.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 118-305