Edited version of private advice

Authorisation Number: 1052232156711

Date of advice: 14 March 2024

Ruling

Subject: Lump sum payment in arrears tax offset

Question 1

Are you eligible to use the lump sum in arrears offset in relation to any of the income protection payout received in the 20YY financial year?

Answer

No.

Question 2

Will the Commissioner use their discretion to allow a superannuation contribution made in the 20YY year be deducted against a lump sum received in the previous financial year?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were injured at work several years ago, and unable to continue working as a result. Since this incident you have been receiving fortnightly workcover payments.

You made a claim on your income protection insurance policy held with the organisation you receive your workcover payments from as a replacement of the wages that you would have otherwise been able to earn were it not for your illness.

You are the individual policy owner, and the insurance premiums were/are paid by you with no contribution from any other person or entity.

The insurance policy is not held under your superannuation fund or by your employer.

On DD MM 20YY your income protection claim was approved. In MM 20YY you received the lump sum payment relating to the period DD MM 20YY to DD MM 20YY. The payment was to cover the difference between your Workcover payments and your usual wage of $XX per month at the time of your injury.

On DD MM 20YY you made an appointment with your accountant, with a follow up appointment shortly after for advice regarding the payment. You and your solicitor contacted the accountant and were advised over the phone the accountants office would contact you via email. In the next financial year the accountant advised the matter was too difficult and suggested you see another accountant.

Due to the delayed response from the accountant you attempted to obtain advice from, your superannuation contribution was not made until the next financial year.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 159ZRA

Income Tax Assessment Act 1936 subsection 159ZR(1)

Taxation Administration Act 1953 section 12-80

Taxation Administration Act 1953 section 12-120 of Schedule 1

Income Tax Assessment Act 1997 section 290-150

Reasons for decision

Question 1

Summary

The lump sum payment in arrears (LSPIA) tax rebate is not available to reduce your tax payable in the year of income in which it was received.

Detailed reasoning

An individual who receives certain assessable lump sum payments containing an amount that accrued in earlier income years may be entitled to a lump sum payment in arrears (LSPIA) tax rebate (or tax offset) under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936).

The tax offset is intended to overcome the problem of the lump sum attracting more tax in the year of receipt than would have been payable if the payment had been taxed in each of the years in which it accrued. The tax offset is broadly calculated as the difference between the extra amount of tax payable in the year of receipt because of the lump sum and the amount of tax that would have been payable if the lump sum had been taxed as it accrued.

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 includes compensation, sickness, or accident payments.

Paragraph 159ZR(1)(c) of the ITAA 1936 includes in this definition payments covered by section 12-80 or section 12-120 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Section 12-120 in Schedule 1 to the TAA 1953 refers to a compensation, sickness or accident payment that is:

•        made in respect of an incapacity for work; and

•        is calculated at a periodical rate; and

•        is not a payment made under an insurance policy to the policy owner.

In your case you are the policy owner. You received lump sum payments under an individual income protection insurance policy which was not a group policy held under your superannuation fund or by your employer.

Therefore, the lump sum payment amounts you received that accrued in earlier years of income are not considered 'eligible income' under section 159ZR of the ITAA 1936. You are not eligible for the lump sum payment in arrears tax rebate under these circumstances.

Question 2

Summary

The Commissioner has no discretion in allowing a contribution received in one year to be deducted in another.

Detailed reasoning

To be eligible to claim a personal superannuation contribution as a deduction, you must meet all the requirements of section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997).

The first requirement (subsection 290-150(3) of the ITAA 1997) is that the deduction is only for the income year in which the contribution was made.

In your case, if the contribution was received in a particular income year, it is only deductible in that year provided:

•        The requirements of 290-150 of the ITAA 1997 are met; and

•        You have sufficient income to claim it against

The Commissioner has no discretion in allowing a contribution received in one year to be deducted in another.

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