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Edited version of private advice
Authorisation Number: 5010068558574
Date of advice: 13 July 2020
Ruling
Subject: Lump sum settlement
Question
Will the amount received for injury compensation be treated as assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an amount is included in assessable income if it is income according to ordinary concepts (ordinary income). Whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient.
The settlement payment is not assessable as ordinary income as it is not a product of any employment, services or business carried on by you and it does not have the characteristics normally associated with ordinary income, rather, we consider this compensation to be related to your claim of spinal injury.
This ruling applies for the following period:
Year ended 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
You were employed and unable to attend work since 20XX.
You sustained personal injuries and received Injury benefit payments form 20XX until 20XX.
You were unable to return to full duties and attend work since February 20XX. Your role was retained but due to incapacity to perform and inability to perform reasonable requirements of pre-injury role, your employment was terminated.
On 20XX you entered a Deed of Release to settle the compensation action. Under the Deed:
· you were to receive a settlement sum of $XXXX in full and final settlement of the claim
· you released and discharged any current or future liability arising out of the claim.
You received the lump sum payment for the sustained injury on 20XX referred to as the settlement sum in the Deed of Release and Settlement Agreement for full and final settlement of the claim.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5(2)
Income Tax Assessment Act 1997 Section 6-15
Income Tax Assessment Act 1997 Section 118-37 (1)