Issue
Are weekly compensation payments received by the taxpayer after retirement age to replace income, assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes, weekly compensation payments received by the taxpayer after retirement age to replace income are assessable under section 6-5 of the ITAA 1997.
Facts
The taxpayer was injured at work.
The taxpayer's employer paid compensation for loss of wages for a period until the insurer assumed the liability for the payments.
The insurer continued to pay compensation to the taxpayer until the taxpayer reached retirement age. The taxpayer then received a determination from the insurer which set a weekly rate of payment that the taxpayer will receive indefinitely.
Reasons for Decision
Subsection 6-5(1) of the ITAA 1997 provides that a taxpayer's assessable income includes income according to ordinary concepts, which is called ordinary income.
Income according to ordinary concepts has been held by the courts to include income from the rendering of personal services, income from property and income from carrying on of a business.
An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( FC of T v. Dixon (1952) 86 CLR 540). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts ( FC of T v. Inkster 89 ATC 5142, 20 ATR 1516; Tinkler v. FC of T 79 ATC 4641, 10 ATR 411; Case Y47 91 ATC 433, 22 ATR 3422).
Although the taxpayer has reached retirement age, the insurer continues to make periodical payments to the taxpayer to compensate for the loss of earnings. These payments will continue to be characterised as income according to ordinary concepts. The compensation payments are therefore assessable as ordinary income under section 6-5 of the ITAA 1997.
Amendment History
Date of Amendment Part Comment 9 September 2016 Case References Insert authorised report and medium neutral case references
Date of Amendment | Part | Comment
9 September 2016 | Case References | Insert authorised report and medium neutral case references