Issue
Is the taxpayer entitled to a lump sum payment in arrears tax offset under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of a lump sum payment of interest received?
Decision
No. The taxpayer is not entitled to a lump sum payment in arrears tax offset under section 159ZRA of the ITAA 1936 as the interest received is not eligible income for the purposes of the tax offset.
Facts
The taxpayer invested funds in a first mortgage investment with a professional person.
The taxpayer's investment collapsed. Since the date of collapse the taxpayer received no interest and had no access to the principal they invested.
The taxpayer made a claim for compensation to cover their losses as a result of the collapse of their investment. The claim was made to the professional body of which the professional person was a member.
The professional body allowed the taxpayer's claim. The compensation paid consisted of the amount of principal invested plus interest. The interest was calculated on the outstanding principal from the date of default of the professional person to the date of approval of the claim.
Reasons for Decision
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. The definition does not include interest income.
As the lump sum payment of interest is not an 'eligible lump sum', the taxpayer is not entitled to a lump sum payment in arrears tax offset under section 159ZRA of the ITAA 1936.