Issue
Is the incapacity payment made to a taxpayer by the Department of Veterans' Affairs (DVA) in accordance with the Safety Rehabilitation and Compensation Act 1988 (SRCA) included in their assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The incapacity payment made to a taxpayer by the DVA in accordance with the SRCA is included in their assessable income under section 6-5 of the ITAA 1997.
Facts
The DVA makes an incapacity payment to the taxpayer in accordance with the SRCA.
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.
Pensions are generally assessable as 'ordinary' income. Therefore, the incapacity payment is assessable unless it is made exempt from tax by a provision of the Income Tax Assessment Act 1936 (ITAA 1936) or ITAA 1997.
Subdivision 52-B of the ITAA 1997 exempts from income tax disability pensions paid under the Veterans' Entitlements Act 1986 (VEA).
Although the taxpayer receives an incapacity payment from the DVA, the payment is made under the SRCA and not under the VEA. There is no provision in the ITAA 1936 or ITAA 1997 that exempts an incapacity payment made under the SRCA.
Amendment History
Date of Amendment Part Comment 18 December 2015 All parts Abbreviated Department of Veterans' Affairs to DVA. Updated disability support pension to incapacity payment.
Date of Amendment | Part | Comment
18 December 2015 | All parts | Abbreviated Department of Veterans' Affairs to DVA. Updated disability support pension to incapacity payment.