Issue
Is the amount the taxpayer received from a Total and Permanent Disability benefit for loss of salary and wage income, assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The amount the taxpayer received from a Total and Permanent Disability benefit for loss of salary and wage income, is assessable income under section 6-5 of the ITAA 1997.
Facts
The taxpayer ceased working and made a claim for a Total and Permanent Disability benefit through their superannuation fund.
The taxpayer was successful in their claim and was entitled to 75% of their final salary for a period of 2 years. The taxpayer was paid the benefit as a lump sum in 2001.
The benefit was paid as compensation for the loss of salary and wage income.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.
Other characteristics of 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.
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.
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; (1952) 5 ATR 443;10 ATD 82). 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 (1979) 10 ATR 411; 79 ATC 4641; Case Y47 (1991) 22 ATR 3422; 91 ATC 433).
The taxpayer received a compensation payment for loss of salary and wages. The payment was not made to compensate for pain and suffering. The payment retains the characteristics of ordinary income even though it was paid as a lump sum. The compensation payment is therefore ordinary income and assessable under section 6-5 of the ITAA 1997.