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SENIOR v FC of T

Members:
R Deutsch DP

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2015] AATA 353

Decision date: 22 May 2015

Prof R Deutsch (Deputy President)

BACKGROUND

1. This application seeks the review of an objection decision concerning a private ruling. The Applicant had applied for a private ruling in respect of a lump sum finalisation payment made pursuant to a Deed of Release. The Applicant asserted in her application that the payment was not assessable as ordinary income or, under the capital gains provisions, as statutory income. The Respondent considered that the payment was assessable as ordinary income.

THE RELEVANT FACTS AS DISCLOSED IN THE RULING APPLICATION

Employment and Benefits

2. In 1993 the Applicant commenced employment with a company known as Heath Fielding Australia Pty Ltd ("the Employer").

3. In securing her employment, the Applicant entered into certain contractual arrangements which gave her a variety of benefits which included as part of her remuneration package the benefit of the Employer's Group Salary Continuance Policy ("the Policy").

4. Under the Policy, the Applicant was insured in respect of Total Disablement.

5. The term "Total Disablement" was defined in the Policy as follows:

TOTAL DISABLEMENT - means the continuous inability of the Insured Employee by reason of injury or sickness to perform his occupation, and remains under the regular care and treatment of a currently registered medical practitioner and is not engaged in any occupation or employment for wage or profit.

The Claim and the Initial Monthly Payments

6. In 1995, the Applicant was diagnosed with a number of illnesses and was deemed unfit for work. As a result, the Applicant subsequently made a claim on the Policy.

7. In accordance with the Policy, the named insurer in the Policy ("the Insurer") commenced to pay the Applicant monthly benefits on the basis of the Applicant's "Total Disablement". The Applicant

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included the monthly benefits in her assessable income. Under cl 1(a) of the Policy, the Applicant's entitlement to monthly benefits would end if the Applicant's condition no longer answered the description of "Total Disablement". This could apply, for example, if the Applicant was no longer unable to work by reason of injury or sickness.

8. The Applicant's entitlement under the Policy was calculated as a monthly benefit at the rate of 75% of the Applicant's monthly salary until the age of 65 years. Income tax was withheld from each monthly payment.

9. Between 1997 and 2007, the Applicant received certain medical treatment which was organised and/or funded by the Insurer. However, it seems that neither the organisation nor the funding of such treatment by the Insurer was the result of any specific entitlement of the Applicant under the Policy.

10. The Applicant continued to receive monthly benefits from the Insurer until 2001 when the Insurer entered into liquidation.

The Commonwealth Monthly Payments

11. After the Insurer entered into liquidation and some time in the 2002 income year, the Applicant commenced her participation in a Government supported scheme ("the Support Scheme"). Under the Support Scheme the Applicant received monthly benefits from the Commonwealth.

12. The monthly benefits paid by the Commonwealth under the Support Scheme were "net of tax" - that is, a "pay as you go" ("PAYG") tax instalment on each of the Applicant's monthly benefits had been withheld and remitted to the Respondent. The payments made by the Commonwealth under the Support Scheme represented 100% of the monthly benefits the Applicant would have received under the Policy.

The Deed of Release

13. By letter dated 9 April 2008, the Applicant was informed that the Commonwealth intended to finalise its obligations under the Support Scheme by paying a lump sum amount ("the Finalisation Payment") in July 2008, rather than continuing to pay monthly benefits.

14. On 27 June 2008, the Applicant, as Claimant, executed a Deed of Release ("the Deed").

15. Clause H of the Deed referred to an assignment by the Applicant in favour of the Commonwealth, which occurred at the commencement of the Applicant's participation in the Support Scheme after the Insurer entered into liquidation in 2001. Clause H provided (T3-51):

The Claimant assigned to the Commonwealth (i) all of her rights to receive or demand the receipt of any benefit arising from the Claim which is the subject of payments from the Commonwealth under the Support Scheme, and (ii) any rights, however arising, which the Claimant may have or obtain against any person or organisation other than the Insurer, in respect of matters which have given rise to the Claimant's need to make the Claim.

16. The instrument by which that assignment was effected is not incorporated by reference into the scheme defined in the private ruling and is not otherwise contained in the materials before the Tribunal.

17. Clauses I to M of the Deed provided as follows:

  • I. The Claimant has been receiving monthly payments (net of tax) from the Commonwealth under the Support Scheme representing 100% of the amount that the Insurer would have been obliged to pay to the Claimant on a monthly basis under the Policy.
  • J. If the Commonwealth continues to make monthly payments to the Claimant, those payments may not cease until 30 December 2033.
  • K. The Scheme will pay a Finalisation Payment which has been calculated on the basis set out in Annexure "A".
  • L. The Claimant will be issued with a PAYG Payment Summary which will show the Finalisation Payment (i.e. the Gross Amount before tax is deducted) and the amount of Tax Withheld.
  • M. The Claimant accepts the Finalisation Payment and agrees that the payment of the Finalisation Payment constitutes a full

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    discharge by the Commonwealth of its obligation under the Support Scheme to pay to the Claimant 100% of the amount that the Insurer would have been obliged to pay to the Claimant in respect of the Claim and that the Claimant is not entitled to receive further amounts under the Support Scheme in respect of the Claim.

18. "The Claim" was defined in cl A of the Deed to mean "all claims made by the Claimant under the Policy".

19. The "Finalisation Payment" was defined in cl A of the Deed as follows (T3-50):

A sum which comprises (i) a lump sum amount net of tax in the sum of $1,119,460.94 ( "Net Amount" ) which shall be paid to the Claimant plus (ii) an amount being equal to the PAYG income tax instalment applicable to the amount of the Finalisation Payment, in the sum of $931,119.40 which the Commonwealth shall withhold and remit to the Commissioner of Taxation ( "Tax Withheld" ). The total of these two (2) amounts is the Finalisation Payment which shall be paid to (and in the case of the income tax instalment component, on behalf of) the Claimant in full and final settlement of the Claim and/or any related actions arising from the Claim.

20. An effect of the Deed was to achieve finality in the discharge of all obligations by the Commonwealth, the Support Scheme and the Insurer relating to the Claim. Clauses O and P provided as follows:

  • O. The Claimant agrees that this release may be pleaded in defence by the Commonwealth, HSCL [sic] or the Insurer to any past, present and/ or future claim, demand, action, suit or proceedings arising from or relating to the Claim.
  • P. The Claimant acknowledges and agrees with regard to any past, present and/ or future claim, demand, action, suit or proceedings arising from or relating to the Claim or his/her entitlement to receive assistance from the Support Scheme referred to in paragraph G, that no past, present or future liability, obligation and/ or costs whatsoever attach to the Support Scheme, HCSL, the Commonwealth or the Insurer. The Claimant agrees that this Deed of Release may be pleaded in any defence against any attempt to claim otherwise.

21. Payment of the Finalisation Payment was dependent upon the Applicant undertaking a final medical assessment and fully complying with the requirements of the Policy until the date of such medical assessment.

Calculation and Payment of the Finalisation Payment

22. Annexure "A", which was signed by the Australian Government Actuary, stated:

Your Finalisation Payment has been calculated as the amount which, after allowing for Tax Withheld, would be expected, together with investment earnings of 4.00 per cent per annum, to provide the monthly benefit payments, net-of-tax, otherwise payable to you under the Support Scheme from 1 July 2008 until 30 December 2033…

23. The calculation of the Finalisation Payment was undertaken by the Australian Government Actuary and in doing so, the following information was used and assumptions made:

  • • there was a nil probability of return to work;
  • • the calculation of the benefit would be carried through until 30 December 2033;
  • • the Finalisation Payment would include an escalation benefit of 5% (which would have been payable on 2 July each year under cl 3 of the Policy);
  • • the Finalisation Payment was calculated so as to ensure that the Applicant was not detrimentally affected by the taxation implications of receiving a lump sum assessable in one financial year.

24. The total after tax amount of $1,119,460.94 paid to the Applicant is the amount the Applicant would have received until age 65 if she had continued to receive the monthly payments under the Support Scheme and was taxed at the relevant marginal tax rate, after allowing for investment earnings. Having determined that the Applicant should receive $1,119,460.94, the Australian Government Actuary then performed a calculation to ascertain the total amount required to be paid to the Applicant by the Commonwealth in order to

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ensure that, after being taxed at the highest marginal rate, she would still receive the net sum of $1,119,460.94. As the Actuary indicated: "A Finalisation Payment of $2,050,580.34 is needed to result in a Net Amount of $1,119,460.94 after Tax Withheld."

25. During the year of income ended 30 June 2009, pursuant to cl K of the Deed, the Support Scheme made the Finalisation Payment to the Applicant in the sum of $2,050,580.34, less an amount of $931,119. 40. That later amount represented tax withheld which was remitted to the Respondent on behalf of the Applicant.

A PRIVATE RULING APPLICATION AND THE TRIBUNAL'S REVIEW ROLE

General Principles in relation to reviews of Objection Decisions relating to Private Rulings

26. The application before the Tribunal relates to an objection raised against a private ruling made at the request of the Applicant.

27. There are a number of important principles which apply to the situation where objections are raised against a private ruling.

28. First, a private ruling is a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to a taxpayer in relation to a specified scheme and it must identify the entity to whom it applies, the relevant scheme and the relevant provision: s 359-5(1), (2) and Division 359 generally in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Accordingly, the private ruling is confined to a consideration of the "scheme" identified in the private ruling.

29. Secondly, as usual it is the Applicant who has the burden of proving that the private ruling should have been made differently: s 14ZZK(b)(iii) (now amended) of the TAA 1953.

30. Thirdly, when making a private ruling, the Respondent does not make findings of fact. The Respondent simply identifies the facts as spelt out in the ruling request and then states his opinion about the way in which the relevant tax laws apply to the Applicant in relation to those identified facts:
Commissioner of Taxation v McMahon (1997) 79 FCR 127.

31. This position was explained in
Re Cooper Bros Holdings Pty Ltd and Commissioner of Taxation (2013) 59 AAR 165; [2013] AATA 99:

The Tribunal can only consider the stated facts comprising the scheme the subject of the ruling. Furthermore, the Tribunal cannot "redefine" the scheme (see McMahon at 133, 141, 144-146, 150) - the Tribunal is confined by the scheme as it has been described in the ruling and cannot depart from that description in any respect. The Tribunal cannot create its own description of the scheme, elaborate upon or make assumptions about the scheme, nor can the Tribunal add further facts, substitute other facts or otherwise alter the scheme (McMahon at 133-134, 140-146, 149-150;
Bellinz v Federal Commissioner of Taxation (1998) 84 FCR 154 at 160; Reef Networks at [6]; Lamont at [21], [26]; Hastie Group at [3]; Cooperative Bulk Handling at [16]).

32. Thus, it seems to be clear from the decided authorities that the Tribunal's role with respect to the review of an objection decision regarding a private ruling is confined to reviewing the correctness of the ruling premised on the "specified scheme" in the private ruling. It has "no role whatsoever in fact finding":
Re The Public Servant and Commissioner of Taxation [2014] AATA 247 at [53].

Discretion to go beyond Private Ruling

33. Section 359-65 in Schedule 1 to the TAA 1953 deals with the circumstances in which, for the purpose of an objection decision, the Respondent may have regard to additional information not considered by the Respondent when he made the private ruling. Under that section, the Tribunal may consider additional information otherwise within the terms of s 359-65(1) irrespective of whether the Respondent has in fact considered that material in making his objection decision: Cooper Bros at [33]; The Public Servant at [49].

34. However, the Tribunal has concluded that s 359-65(1) only permits consideration of material that is informative about the facts comprising the scheme, as it has been described in the ruling request. Section 359-65 does not permit either the Respondent in making his objection decision, nor the Tribunal in

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reviewing that decision, to redefine the scheme: Cooper Bros at [35]; The Public Servant at [48]-[49].

35. Further, the Tribunal may only consider additional information pursuant to s 359-65(1) to the extent that it bears upon the correctness of the ruling in issue: Cooper Bros at [36]; The Public Servant at [49].

36. Accordingly, I propose to restrict my comments entirely to matters raised in the ruling and will consider additional matters only to the extent that such other matters bear upon the correct view of the ruling.

ISSUES FOR DETERMINATION

37. The principal issue before the Tribunal is to determine whether the Finalisation Payment made pursuant to cl K of the Deed was in its entirety income according to ordinary concepts pursuant to s 6-5 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997").

38. The Applicant contends that the Finalisation Payment was not in its entirety income according to ordinary concepts. Rather, it was an undissected sum which included capital components in consideration for:

  • (a) financial assistance by the Commonwealth; and/or
  • (b) the assignment by the Applicant to the Commonwealth of rights which fell partly outside the deeming provision of s 322-5 of ITAA 1997; and/or
  • (c) the releases contained in cll O and P of the Deed.

39. Alternatively, the Applicant pursues the same argument by a different route - namely that, at least in part, the Finalisation Payment was constituted by, or in substitution for, capital proceeds referable to a CGT event A1 which is said to have occurred upon the assignment of rights by the Applicant to the Commonwealth at the commencement of her participation in the Support Scheme during the 2002 income year.

40. Accordingly, if either argument put by the Applicant were to succeed the lump sum would on the authority of
McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381 and
Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341 be treated in its entirety as being wholly on capital account.

41. The Respondent contends that the Finalisation Payment was in its entirety a payment made in substitution for income, which thus bore the character of ordinary income. Thus, the Finalisation payment was not an undissected sum incorporating capital and income components.

WAS THE FINALISATION PAYMENT MADE IN SUBSTITUTION FOR INCOME?

General Principles

42. Section 6-5(1) of the ITAA 1997 provides that assessable income includes "income according to ordinary concepts". Such income is commonly called "ordinary income" and I will refer to it as such in this decision.

43. "Ordinary income" is not further defined in the ITAA 1997 and thus the items which fall within this description must be determined in accordance with "the ordinary concepts and usages of mankind". To put it another way whether something is within the broad category of ordinary income is to be determined by "ordinary parlance". These concepts are helpful as they "identify the essential nature of the inquiry":
Federal Commissioner of Taxation v Anstis (2010) 241 CLR 443 at [13];
Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639 at [64] and
Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219.

44. In considering what is ordinary income in ordinary parlance, the case law has suggested that there are a number of general principles, four of which are particularly relevant in the present circumstances.

All the circumstances are relevant

45. First, in determining whether an amount is ordinary income one must inevitably have regard to the totality of the circumstances: Anstis at [20]. This would include, for example, the statutory context that pertains to any given situation.

Regularity

46. Secondly, the periodicity, regularity and recurrence of a receipt has been considered to be a hallmark of its character as income in accordance with the ordinary concepts and usages of mankind:
Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 at 215. However, the opposite - namely a lack of periodicity, regularity and recurrence - does not, however, automatically lead to a conclusion that an amount is not ordinary income:
Prendergast v Cameron [1940] AC 549 at 563 and
Re Harrison and Commissioner of Taxation [2013] AATA 657.

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Reliance

47. Thirdly, where an expected periodical payment forms part of the receipts upon which a taxpayer depends for his or her regular expenditure, and the payments are made for that purpose, this points to a conclusion that the payment is received as income:
Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 at 557;
Keily v Commissioner of Taxation (1983) 83 ATC 4248.

48. Thus, it follows that a periodic pension or allowance, paid by way of compensation for loss of income that would otherwise have been received, has been held to be income according to ordinary concepts. This point was exemplified by the decision in Anstis, where the High Court concluded that youth allowance payments were income according to ordinary concepts because recipients could rely upon them for regular expenditure and could expect to receive them so long as they satisfied the requirements of the social security legislation.

Substitution

49. Finally, an amount that is paid to compensate for loss generally takes the character of that for which it is substituted, regardless of the method by which the payment is made:
Commissioner of Taxes (Vic) v Phillips (1936) 55 CLR 144 at 156 and 157; Dixon at 568;
Tinkler v Federal Commissioner of Taxation (1979) 10 ATR 411 at 413.

50. Therefore, where payments are made to replace income, they will generally be considered to be ordinary income. It is well established that, in general, insurance moneys are received on revenue account where the purpose of the insurance is to fill the place of a revenue receipt which the event insured against has prevented from arising. Thus, amounts payable under a policy that provides a monthly indemnity against income loss arising from inability to earn are of a revenue character.

Application to the Present Circumstances

All the circumstances are relevant

51. In this case, the Applicant's entitlement to a monthly benefit under the terms of the Policy, had a direct relationship to the ability of the Applicant to earn an income. The Policy provided that the benefit ceased in the event that the Applicant returned to work or her illness resolved (cl 1(a)). Furthermore, the monthly benefit payable under the Policy (and thus the Support Scheme) was calculated with reference to the Applicant's salary as a net tax amount, with income tax withheld from each monthly benefit.

52. The taxation treatment of payments made by the Support Scheme to persons in the position of the Applicant is the subject of specific legislation, namely Div 322 of the ITAA 1997. This is a relevant circumstance that pertains to the Applicant's situation. As indicated previously it is the totality of the circumstances that must be considered.

53. That legislation was enacted in 2001 and sets out special measures to assist in the rescue package provided in response to the collapse of the HIH group: see in particular s 322-1.

54. Section 322-5(1) provides:

This Act applies to you as if a payment you receive from the Commonwealth, the *HIH Trust or a prescribed entity for assignment of your rights under or in relation to a *general insurance policy you held with an *HIH company:

  •   (a) had been made by the HIH company; and
  •   (b) had been made under the terms and conditions of the general insurance policy you held with the HIH company.

55. In the Second Reading Speech the relevant Minister said:

This bill also includes provisions associated with the financial collapse of the HIH group of companies. As a consequence of the financial collapse of the HIH group of companies, the Commonwealth has established a scheme to assist certain qualifying individuals and small businesses who experience financial hardship as a direct result of the collapse. This bill contains measures to ensure that there are

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no unintended income tax or GST consequences arising from transactions occurring as a result of a HIH rescue package.

56. The Revised Explanatory Memorandum which accompanied the Bill makes plain that the legislative objectives of s 322-5 included:

  • (a) to "ensure that the income tax consequences of payments under the HIH rescue package are the same as if those payments had been made directly by HIH";
  • (b) to "ensure that … payments received from the HIH Trust in settlement of a claim under a general insurance policy held with an HIH company will be taxed as if those payments were made
    • - by the HIH company; and
    • - under the terms and conditions of the original policy"; and
  • (c) to ensure that "HIH rescue payments are treated as insurance payments by an HIH company", including "for income tax purposes".

57. As the High Court indicated in
Alcan v Commissioner of Territory Revenue (2009) 239 CLR 27 the task is to interpret the words of the statute.

58. By force of the words in s 322-5 itself, the monthly payments made to the Applicant under the Support Scheme were intended to be and were treated, for the purposes of the ITAA 1997, as though they were payments made by the Insurer under the terms and conditions of the Policy.

59. Clearly, those words themselves lead to the conclusion that the consequences of payments made under the HIH rescue package are no different to the consequences which would have arisen had the payments been made directly by HIH.

60. The Revised Explanatory Memorandum merely confirms this position.

Reliance

61. The monthly benefits paid to the Applicant under the Policy and, until the execution of the Deed, the monthly payments made to the Applicant under the Support Scheme, were expected, relied upon and regular.

62. The Applicant clearly expected to receive the amounts in question and certainly relied upon them as part of her day-to-day living expenses. As far as the payment under the Support Scheme was concerned they were regularly received on a monthly basis. This aspect is more fully discussed below.

Regularity/Substitution

63. The monthly benefits paid to the Applicant under the Support Scheme were a substitute for the income the Applicant would have earned except by reason of her illness. The monthly benefits were a direct substitute for the income lost by reason of the Applicant's inability to work.

64. Like the monthly benefits paid under the Support Scheme, the Finalisation Payment was a substitute for income. A change in the method of the payment (that is, a lump sum payment rather than a monthly payment) does not alter the character of the Finalisation Payment as being a substitute for income. In
Sommer v Federal Commissioner of Taxation (2002) 51 ATR 102, Merkel J held that a lump-sum payment made by an insurer to a medical practitioner by way of settlement of proceedings seeking monthly payments under an income replacement policy was assessable income. His Honour said:

[16] The fact that the payment of the monthly benefits in the present case is made in one lump sum does not change the revenue character of the receipt if it was essentially designed to compensate the applicant in respect of his income replacement claims or was a payment in substitution for those claims …

[19] The substance and the commercial reality of the settlement was that it was a full and final settlement of the dispute between the applicant and the insurer in relation to the applicant's past and future claims to be entitled to income replacement benefits as a result of his total or partial disability since August 1996. As explained above, it is well established that a payment in settlement of such claims is a payment on revenue account.

65.

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That reasoning was applied by the Tribunal in
Re Gorton and Commissioner of Taxation (2008) 72 ATR 201 in concluding that a lump sum payment by an insurer pursuant to a deed of release executed in settlement of a dispute under an income protection insurance policy, in substitution for monthly payments under the policy, constituted ordinary income. To similar effect, there have been numerous cases in which the Tribunal has concluded that a lump sum payment of compensation or other benefits, paid in substitution for periodic payments, is ordinary income:
Re Allman and Federal Commissioner of Taxation (1998) 39 ATR 1081 at [8];
Re Purdon and Federal Commissioner of Taxation (2001) 46 ATR 1161 at [15]-[17];
Re Cooper and Federal Commissioner of Taxation (2003) 52 ATR 1199 at [11];
Re Brackenreg and Federal Commissioner of Taxation (2003) 53 ATR 1116 at [13].

66. There seems to be no reason why the same logic would not apply with equal force in the present case.

67. The Finalisation Payment was a substitute, at present value, for the future income stream represented by monthly payments under the Support Scheme which, in turn, were in substitution for the amounts payable by the Insurer by way of income protection insurance for the balance of the benefit period under the Policy. The Finalisation Payment made under cl K of the Deed became payable as a result of the Applicant's pre-existing right to a benefit under cl 1 of the Policy, and the operation of the Support Scheme by reference to that pre-existing right. The Finalisation Payment bore the same character, namely income, as was borne by the monthly payments made under the Support Scheme.

68. Any doubt in that regard would seem to be removed by s 322-5 of the ITAA 1997. Again, by operation of that provision, the Finalisation Payment must be treated, for income tax purposes, as though it were a payment made to the Applicant by the Insurer under the terms and conditions of the Policy.

69. The construction of s 322-5 which the Applicant advocates is, in my view, a construction which is strained, unduly narrow and inconsistent with its legislative purpose that underpins that section.

70. The Applicant contends that the assignment by the Applicant to the Commonwealth in the 2002 year which is later described in cl H(ii) of the Deed - namely of "any rights, however arising, which the [Applicant] may have or obtain against any person or organisation other than the Insurer, in respect of matters which have given rise to the [Applicant's] need to make the Claim" - is not an "assignment of your rights under or in relation to" the Policy for the purpose of s 322-5.

71. That construction is difficult to accept.

72. The words "in relation to", where used in the phrase "assignment of your rights under or in relation to a *general insurance policy", convey a meaning which is largely consistent with the widest connection capable of expression in ordinary English. There is no sensible reason, consistent with the terms and structure of Div 322, for confining that expression to rights enforceable against the Insurer.

73. On the contrary, there is a cogent argument to the effect that such an interpretation would deprive s 322-5 of much of its practical operation by precluding the application of the deeming provision whenever the assignment to the Commonwealth, for the purpose of participation in the Support Scheme, extended beyond a policyholder's rights against an insurer.

74. The construction of s 322-5 advanced by the Applicant amounts to treating the words "in relation to" as no more than a linking phrase which is essentially devoid of all practical meaning.

75. The Tribunal must strive, as far as possible, to give meaning to every word of a statutory provision. If the Parliament had intended to confine the operation of s 322-5 to an assignment of rights against the Insurer, there would have been no reason to include in s 322-5 the words "in relation to"; the rights against the Insurer would be adequately identified as rights "under" a general insurance policy.

76.

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The Applicant's interpretation of s 322-5 would defeat the legislative object of ensuring "that the income tax consequences of payments under the HIH rescue package are the same as if those payments had been made directly by HIH".

77. The Applicant further asserts at paragraph 3.25 of her Outline of Submissions dated 19 November 2014 that "subsection 322-5(1) is intended to only apply in relation to assignments of rights under or in relation to a policy (per Clause H(i) of the Release) and not rights which are "in respect of matters" which have given rise to the claimant's need to make a claim under the policy - for which the insurer is not a relevant party (that is , the insured's claim as against someone who is not the insurer)." (Original emphasis.)

78. Again, with respect, I cannot agree.

79. The rights which had been assigned by the Applicant to the Commonwealth in the 2002 year, as later described in cl H(ii) of the Deed, were rights against persons or organisations other than the Insurer, but they were, in my view, nonetheless rights in respect of matters which have given rise to the [Applicant's] need to make any claims under the Policy. This is confirmed by the definition of the term "Claim" in cl A of the Deed which defines "Claim" very broadly to mean "all claims made by the Claimant under the Policy". The rights thus were defined by reference to the Applicant's need to make a claim under the Policy. Those rights included any rights of recovery against any wrongdoer who caused the injury or illness, enforcement of which would or could reduce the liability of the Insurer under the Policy and thus of the Commonwealth under the Support Scheme.

80. As a matter of ordinary language, viewed in the context of the terms, scope and purpose of Div 322, the assignment of those rights to the Commonwealth was an assignment of rights "in relation to" the Policy. The assignment thus attracts the operation of the deeming provision in s 322-5(1).

81. Having regard to all the circumstances, including s 322-5 and its consequences; the reliance, regularity and substitution aspects outlined above, the Tribunal concludes that the Finalisation Payment was "income according to ordinary concepts" within the meaning of s 6-5(1) of the ITAA 1997.

CONCLUSION

82. Neither the monthly payments made under the Support Scheme nor the Finalisation Payment made under the Deed were undissected payments, or an undissected lump-sum, which included capital components. Accordingly, there is no occasion here to invoke the principles associated with McLaurin and Allsop concerning the treatment as on capital account of any such undissected payments.

83. The Finalisation Payment comprised ordinary income within s 6-5(1) of the ITAA 1997 and nothing else. It was therefore assessable income to be taken into account in assessing the Applicant's taxation liabilities for the year ended 30 June 2009.

84. Accordingly, the decision under review, being the Respondent's objection decision dated 17 December 2012, is affirmed.


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