Issue
Are the amounts paid under a mortgage insurance agreement, as a result of the taxpayer's injury, assessable to the taxpayer under sections 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The amounts paid under a mortgage insurance agreement, as a result of the taxpayer's injury, are not assessable under sections 6-5 or 6-10 of the ITAA 1997.
Facts
The taxpayer took out mortgage insurance to assist with the mortgage payment on a home loan in the event of incapacity. The taxpayer sustained an injury and made a claim on the mortgage insurance policy. The amounts were paid by the insurer to the mortgage loan financier and were applied against the loan.
Reasons for Decision
Section 6-5 of the ITAA 1997 provides that the assessable income of Australian residents includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. The payments are not considered to be ordinary income according to ordinary concepts under section 6-5.
The amounts payable by the insurer under the mortgage protection policy are not paid to the insured but to the mortgage loan financier. The payments have not been derived by the insured and therefore, are not ordinary income of the insured.
Section 6-10 of the ITAA 1997 provides that assessable income includes statutory income, that is, income included by the provisions in section 10-5 of the ITAA 1997. Mortgage loan insurance receipts are not embraced within section 10-5 of the ITAA 1997. Section 6-15 of the ITAA 1997 provides that if an amount is not ordinary income and is not statutory income, it is not assessable income.