Issue
Is a lump sum Bereavement Payment received from the United Kingdom (UK) Department for Work and Pensions (DWP) included in the taxpayer's income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A lump sum Bereavement Payment received from the UK DWP is not included in the taxpayer's income under section 6-5 of the ITAA 1997.
Facts
The taxpayer is an Australian resident for tax purposes.
The taxpayer received an amount from the UK DWP which is classified as a Bereavement Payment.
A Bereavement Payment is payable upon the death of a person to the surviving spouse. It is a one off payment to assist the surviving spouse with any expenses as a result of their spouse passing away.
Under UK tax laws a Bereavement Payment is a tax-free lump sum payable to a man or woman under state pension age, or to a person over state pension age whose late spouse was not entitled to a Category A Retirement Pension when they died.
The amount of the Bereavement Payment is UK£2,000.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 states that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Ordinary income is income according to ordinary concepts which is not specifically defined in the legislation.
However, characteristics of ordinary income that have evolved from case law include receipts that: • Are earned; • Are expected; • Are relied upon; and • Have an element of periodicity, recurrence or regularity.
Payment for personal services, whether received in the capacity of an employee or otherwise in connection with employment or other personal services is income according to ordinary concepts. Similarly, any payment (for example compensation) to replace income is also considered to be income according to ordinary concepts.
The Bereavement Payment received by the taxpayer was a lump sum received from the UK DWP as a result of the taxpayer's spouse passing away. The payment is not taxable in the UK.
The payment does not have the characteristics of ordinary income. It was not earned by the taxpayer and was not a payment for any personal services provided. Further to this, the payment did not seek to compensate for any loss of earnings which would have otherwise been assessable as ordinary income. It was paid in order to assist the taxpayer with any expenses as a result of their spouse passing away. As a one-off payment it had no element of periodicity, recurrence or regularity.
The Bereavement Payment is therefore not income according to ordinary concepts and is accordingly not ordinary income. Further, the payment is not statutory income under section 6-10 of the ITAA 1997 as no specific provision in either the Income Tax Assessment Act 1936 or the ITAA 1997 includes the payment in assessable income.
The lump sum Bereavement Payment received from the UK DWP is not included in the taxpayer's income under section 6-5 of the ITAA 1997. Note: As the payment is neither ordinary income nor statutory income and therefore does not form part of the taxpayer's assessable income it is not necessary to consider the application of any relevant double tax agreement under the International Tax Agreements Act 1953 .