Edited version of private advice

Authorisation Number: 1052409279103

Date of advice: 24 June 2025

Ruling

Subject: Assessable income - medical benefit payment

Question 1

Is the payment assessable income under either section 6-5 or section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

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 employed by Employer Z.

You have a group salary continuance insurance policy through your employer.

Your employer has the policy through Company Z.

This insurance is paid as part of your salary renumeration and forms part of your employment contract.

Your employer is the owner of the Policy and you are the insured member.

The policy provides an income protection payment for standard disabilities or injuries.

It also provides a lump sum amount, payable upon diagnosis of an eligible condition.

You became eligible for a benefit under the policy after being diagnosed with an eligible medical condition.

The Benefit was paid via your employer and lodged through a payroll run. Your employer did not withhold tax from the payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-2

Reasons for decision

Assessable income

A payment or other benefit received by a taxpayer is included in assessable income if it is:

•                     Income in the ordinary sense of the word, being ordinary income, or

•                     an amount or benefit that through the operation of the provisions of the tax law is included in assessable income, being statutory income.

Ordinary income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of Australian residents includes the ordinary income derived directly or indirectly from all sources.

Ordinary income includes income from rendering personal services, income from property and income from carrying on a business.

Section 6-5 of the ITAA 1997 includes income according to ordinary concepts (ordinary income) in assessable income. Income according to ordinary concepts refers to an accepted usage of the word 'income' and income that Courts have determined is ordinary income.

Statutory income

Section 6-10 of ITAA 1997 includes in assessable income amounts that are not ordinary income. These amounts are statutory income. A list of the statutory income provisions can be found in section 10-5 of ITAA 1997. That list includes a reference to 15-2 of ITAA 1997.

Under subsection 15-2(1) of the ITAA 1997, assessable income includes of a taxpayer includes the value to a taxpayer of all allowances, gratuities, compensation, benefits, bonuses, and premiums provided to the taxpayer in respect of, or for, or in relation directly or indirectly to, any employment of or services rendered.

Personal earnings from the performance of services, whether as an employee or otherwise, are clearly income even if the services are performed, and the rewards received irregularly. Further, it is immaterial whether payment comes from the employer of the recipient or from some third party (FC of T v Dixon (1953) 86 CLR 540).

Employment related insurance

There are two types of cases to be considered in relation to amounts received under employment related insurance:

1.            Where the employer insures employees and, in the case of companies, this includes its employees and/or directors; and

2.            Where an employed or self-employed person takes out a policy of insurance to protect both parties against loss of earnings or loss of ability to earn during a period of disability.

The question of whether payments of compensation under personal sickness and accident, or other disability policies, and payments of workers ' compensation are assessable has been considered by the courts and tribunals (previously Boards of Review) in a number of cases.

For the principles which apply to determine whether insurance receipts constitute ordinary income, see FC of T v Smith 81 ATC 4144, and Carapark Holdings Ltd v FC of T (1967) 14 ATD 402 (Carapark case). In particular, the assessability of insurance proceeds depends on the purpose of the insurance and on whether the amounts received took the place of benefits on revenue account if the insured event had not occurred.

In the Carapark case, the Full High Court stated that, in general, insurance moneys are to be considered as received on revenue account where the purpose of the insurance was to fill the place of a revenue receipt which the event insured against has prevented from arising, or of any outgoing which has been incurred on revenue account in consequence of the event insured against, whether as a legal liability or as a gratuitous payment actuated only by considerations of morality or expediency.

In relation to employers insuring employees, insurance in the nature of a group salary continuance insurance policy is of general benefit to an employer as these policies offer an employee benefit that can help and retain talent and can also help manage the potential financial risk associated with employee absences due to illness or injury.

Application to your situation

In your case, you are insured under a group salary continuance insurance policy your employer has with an insurer which enables employees to make claims if they suffer from any eligible health issues.

Your employer is the owner of the Policy and pays the premiums under the Policy.

The Policy is listed on your employment contract and forms part of your salary remuneration with your employer.

On approval of your claim under the Policy relating to a serious medical condition, the insurer made the benefit payment to your employer as Policy owner. Your employer then made the benefit payment to you via a payroll run and did not deduct tax from the payment.

Based on the information provided, it is considered that the Policy was a benefit of your employment and you received the benefit payment because of your employment. You did not take out the policy and pay for the policy premiums yourself, and would not have received the payment apart from your employment, even if you had experienced the same medical condition.

Although we acknowledge that the payment was a one-off capital payment made in relation to a medical condition, there is nothing to prevent it from being assessable under either section 6-5 or section 15-2 of the ITAA 1997 as it was received because you were an employee and the nexus to your employment exists.

The benefit payment is therefore included in your assessable income.