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ATO Interpretative Decision

ATO ID 2002/175 (Withdrawn)

Income Tax
Assessability of income protection policy payments to financially support the taxpayer

Attention This ATO ID is withdrawn. Guidance on the issue considered in this ATO ID is covered by web content Compensation and insurance payments for lost salary or wages (QC 31968).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 11 August 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Are monthly payments received by the taxpayer under an income protection policy, assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?


Yes. Monthly payments received by the taxpayer under an income protection policy are assessable income under subsection 6-5(2) of the ITAA 1997.


The taxpayer has an income protection insurance policy.

The taxpayer was diagnosed with a terminal illness.

After the taxpayer used all of the available sick leave from their employer, the insurance company commenced the payment of predetermined monthly benefits.

The purpose of the payments was to provide a regular source of income to financially support the taxpayer and their immediate family.

The payment will continue until the earlier of the taxpayer's death or attaining the age of 65.

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.

Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

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.

Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997.

An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( FC of T v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts ( FC of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142; Tinkler v. FC of T (1979) 10 ATR 411; 79 ATC 4641; Case Y47 (1991) 22 ATR 3422; 91 ATC 433).

The monthly payments the taxpayer receives are intended to provide financial support for themselves and their family. The income replacement payments replace the salary and wages normally earned, expected and relied upon by the taxpayer. These payments are considered to be ordinary income as they acquire the character of the salary and wages for which they are substituted. The payments are assessable under subsection 6-5(2) of the ITAA 1997.

Date of decision: 14 February 2002

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(2)

Case References:
FC of T v. Dixon
   (1952) 86 CLR 540
   (1952) 5 ATR 443
   10 ATD 82

FC of T v. Inkster
   (1989) 20 ATR 1516
   89 ATC 5142

Tinkler v. FC of T
   (1979) 10 ATR 411
   79 ATC 4641

Case Y47
   (1991) 22 ATR 3422
   91 ATC 433

Assessable income

Siebel/TDMS Reference Number: DW191443; 1-A4E6ELW

Business Line: Private Groups and High Wealth Individuals

Date of publication: 28 February 2002
Date reviewed: 2 November 2016

ISSN: 1445-2782

ATO ID 2002/175 (Withdrawn) history   Top  
   Date   Version 
   14 February 2002   Original statement   
 You are here ®  11 August 2017   Withdrawn   


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