Lump sum in arrears tax offset- Income protection insurance policy

Is the taxpayer entitled to a lump sum in arrears tax offset under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936) with regard to a lump sum payment received by the taxpayer under an income protection insurance policy?

No. The taxpayer is not entitled to a lump sum in arrears tax offset under section 159ZRA of the ITAA 1936 with regard to a lump sum payment received by the taxpayer under an income protection insurance policy.

The taxpayer received a lump sum payment under an income protection insurance policy. The taxpayer was the policyholder.

The lump sum represented lost income which would have been earned by the taxpayer. It was calculated by reference to a fortnightly rate for a specific period covering more than one income year.

Section 159ZRA of the ITAA 1936 allows a lump sum payment in arrears tax offset where the taxpayer's assessable income in a year of income includes one or more 'eligible lump sums'.

An 'eligible lump sum' is defined as a lump sum payment of 'eligible income' received on or after 1 July 1986 that is included in the assessable income of the taxpayer and accrued, in whole or in part, in an earlier year or years of income (subsection 159ZR(1) of the ITAA 1936).

'Eligible income' is defined in subsection 159ZR(1) of the ITAA 1936 to mean certain specified types of income. Paragraph 159ZR(1)(c) of the ITAA 1936 includes in this definition payments covered by section 12-80 or section 12-120 in Schedule 1 to the Taxation Administration Act 1953 (TAA). Section 12-120 in Schedule 1 to the TAA refers to a payment that is; • in respect of an incapacity for work; • calculated at a weekly or other periodical rate; and • is not a payment made under an insurance policy to the policy owner.

The lump sum was made under a policy of insurance to the taxpayer who was the owner of the policy. Therefore this lump sum is excluded from the definition of 'eligible income' and consequently is not an 'eligible lump sum'. Accordingly the taxpayer is not entitled to a lump sum in arrears tax offset under section 159ZRA of the ITAA 1936.