Edited version of your private ruling

Authorisation Number: 7910152058061

Date of advice: 29 June 2022

Ruling

Subject: Assessable income

Question

Will your personal permanent injury benefits continue to be assessable income under section 6-5 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

XX July 20XX

Relevant facts and circumstances

You suffer from bilateral deafness and had to retire in 20XX.

Your income protection policy began, which covered 75% of your salary at that date.

This amount was indexed annually and paid monthly.

When you reached retirement age, the policy changed to a benefit covering personal permanent injury and is no longer classified as income protection.

The payment amount reverted to 75% of your salary at the 20XX date (no indexation).

The nature and regularity of the payment remained the same, despite a change in the name of the payment.

This policy is for life.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

ATO Interpretative Decision ATO ID 2002/175 Assessability of income protection policy payments to financially support the taxpayer

Reasons for decision

Subsection 6-5(2) of the ITAA 1997 explains that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997.

ATO Interpretative Decision ATO ID 2002/175 Assessability of income protection policy payments to financially support the taxpayer, provides that ordinary income is generally classified into the following 3 categories:

•                    Income from rendering personal services

•                    Income from property; and

•                    Income from carrying on a business

The other characteristics that have been produced from case law and used in private rulings include receipts that:

•                    Are earned

•                    Are expected

•                    Are relied upon; and

•                    Have an element of periodicity, recurrence, or regularity.

Your current benefits are earned, as they are a result of lost income due to permanent injury. The payments are expected as they will be received for life from the beginning of your policy. The benefits are your main source of income, especially after retirement age which demonstrates they are relied upon. Lastly, they are received on a consistent basis monthly which displays an element of periodicity, recurrence, and regularity. This demonstrates that the personal permanent injury benefits you receive fulfill the above characteristics of income and will be treated as such.

In addition, Federal Commissioner of Taxation v. Dixon 86 CLR 540 describes that compensation typically acquires the character for which it is substituted. In this case, the benefits are a substitution for lost income, which means they take the form of income and are assessable.