Issue
Is the taxpayer assessable under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) on an amount received, out of a compensation payment to their spouse, in recognition of the care they provide to their spouse?
Decision
No. The taxpayer is not assessable under subsection 6-5(1) of the ITAA 1997 on an amount received, out of a compensation payment to their spouse, in recognition of the care they provide to their spouse as the amount is not ordinary income.
Facts
The taxpayer's spouse was injured in an accident as a result of which they were incapacitated.
The taxpayer provides ongoing care and support for their spouse.
The taxpayer's spouse took legal action and was awarded compensation for their injuries. The taxpayer was not a party to this legal action.
The court made an order that an amount be paid to the taxpayer, out of the compensation payable to the spouse, in recognition of the care they have provided and will provide to their spouse.
Reasons for Decision
Subsection 6-5(1) of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts, which is called ordinary income.
Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business.
Income from personal services is income that an individual taxpayer earns predominantly as a direct reward for their personal efforts by, for example, the provision of services, exercise of skills or the application of labour (paragraph 3 of Taxation Ruling IT 2639).
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.
The taxpayer does not have an employment relationship with their spouse and therefore they did not receive the payment in the capacity of an employee.
Further, the amount the taxpayer received was for the care and support they provided to their spouse out of love and affection and cannot be described as a direct reward for their personal efforts. The taxpayer's spouse is not paying for the services the taxpayer provides. The amount was more in the nature of an ex-gratia payment or gift to the taxpayer in recognition of the assistance and support they provided and will continue to provide to their spouse.
The payment is also a one off payment and thus does not have an element of recurrence or regularity.
The lump sum payment received by the taxpayer is not income according to ordinary concepts and is therefore not assessable under subsection 6-5(1) of the ITAA 1997.
Amendment History
Date of Amendment Part Comment 27 March 2015 Related Public Rulings Added reference to relevant TD 2004/75
Date of Amendment | Part | Comment
27 March 2015 | Related Public Rulings | Added reference to relevant TD 2004/75