02. Assessable Income

Joshua Easton

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Tax is levied on the taxable income of the taxpayer derived during the income year. Assessable income minus allowable deductions equals taxable income.

Assessable income as defined in ITAA 1997 consists of ordinary income and statutory income.

If specially excluded or made exempt, certain types of ordinary and statutory income that will not be subject to tax.


Ordinary Income is defined to mean income according to ordinary concepts. However, no specific guidance on what is meant by “income according
to ordinary concepts” is contained in the legislation.

It is the courts that have identified a number of factors to provide guidance as to whether an amount has the character of income according to normal concepts.

These include: recurrence and regularity, provision of a service or work, as well as the carrying on of a business or profit-making undertaking or scheme.

Statutory Income applies if the amount is not ordinary income and is included by a specific provision of the Tax Act.

Examples include royalties, some capital gains, lump sum retirement payments, dividend imputation credits and allowances.

Exempt Income is any ordinary or statutory income which the Tax Act specifically exempts from taxation.


The distinction between capital and revenue is a principle established in the Tax Act and extensively dealt with by numerous court findings. It applies
to both receipts and payments.

Prior to 1985, income receipts were assessable to tax and payments were deductible if they were connected with the earnings of income; however, capital
receipts were not. If no such connection existed, usually such payments were only then based on capital account and were non-deductible. The capital
gains tax regime ensured that from 20 September 1985, that many formerly non-assessable capital receipts would be subject to some form of tax.

Generally, taxpayers prefer receipts to be on capital account and payments to be on revenue (income) account. This is because:

  • Prior to calculation of tax, capital gains may be subject to various discounts and exemptions
  • Outgoings are deductible if they relate to the earning of income
  • Outgoings related to capital assets are usually not deductible, but may be added to the cost base of the asset. There is also provision for some building
    capital allowances
  • Capital losses can be carried forward to be offset against future capital gains and cannot be claimed against income on revenue account.



Assessable income includes all proceeds from transactions carried out in the ordinary course of business. Where a business enters isolated transactions
outside normal activities, if there is a profit making undertaking or scheme, then these receipts are also assessable.




All remuneration for personal services, whether in the capacity of an employee or in connection with employment or personal services is assessable income.
Exceptions to this include some initial living away from home allowances and fringe benefits.

Voluntary payments or gifts received, resulting from services provided, are also assessable income.




These are widely defined as benefits received as property or services. Services include any right, privilege or benefit and may be provided either partly
or wholly, or directly or indirectly in a business relationship. If the annual total received is less than $300 then such payments are exempt from
tax. However, should the annual benefit exceed $300 then the total amount will be assessable.




It is no longer possible to roll-over an ETP to superannuation.

The tax treatment of an ETP will depend on whether it is a life benefit ETP or death benefit ETP.

A life benefit ETP is only taxed on the taxable component. The tax-free component compromises the ‘pre-July 1983 segment’, the ‘concessional segment’ and
the ‘post-June 1994 invalidity segment.’ The tax-free component is not assessable income and is not exempt income – that is you do not pay tax on this


Employment Termination Payment Tax Table

Income component derived by thepayee in the income year Age of person at the end of theincome year in which thepayment is received Component subject to PAYGwithholding Rate of withholding (including the Medicare levy) Cap to apply
Life benefit ETP – taxable component Payment is because of:

  • early retirement scheme
  • genuine redundancy
  • invalidity
  • compensation for personal injury, unfair dismissal, harassment of discrimination.
Under preservation age Up to the ETP cap amount 32% ETP cap
Preservation age or older Up to the ETP cap amount 17% ETP cap
All ages Amount above the ETP cap amount 47% ETP cap
Life benefit ETP – taxable component Payment is because of:

  • golden handshakes
  • gratuities
  • payment in lieu of notice
  • a payment for unused sick leave
  • a payment for unused rostered days off.
Under preservation age Up to the relevant cap amount 32% Lesser of ETP cap and whole-of-income cap (see note 2)
Preservation age or older Up to the relevant cap amount 17% Lesser of ETP cap and whole-of-income cap (see note 2)
All ages Amount above the cap amount 47% Lesser of ETP cap and whole-of-income cap (see note 2)
Death benefit ETP paid to non-dependants – taxable component All ages Up to the ETP cap amount 32% ETP cap
Amount above the ETP cap amount 47% ETP cap
Death benefit ETP paid to dependants – taxable component All ages Up to the ETP cap amount Nil ETP cap
Amount above the ETP cap amount 47% ETP cap
  1. Note the whole-of-income cap amount for the 2017-18 income year and future years is $180,000. This amount is not indexed.
  2. The ETP cap amount for 2017-18 income year is $200,000 (indexed).




From 1 July 2012 there has been an additional $180,000 non-indexed whole of income cap based on an individual’s yearly taxable income that will work in
addition to the existing ETP cap rules on some employment termination payments.

An individual will receive an ETP cap, being the lesser of either:

  • the existing lifetime benefit ETP cap
  • the $180,000 ‘whole of income’ cap.

The $180,000 will be reduced by other taxable income (excluding the employment termination payment in question) that the individual may receive in that
income year.

The $180,000 whole of income cap will not apply to:

  • genuine redundancy payments
  • early retirement scheme payments
  • invalidity payments
  • compensation received due to a genuine employment related dispute relating to personal injury, harassment, discrimination or unfair dismissal
  • death benefit payments.

Taxation arrangements for unused annual leave and long service leave payments were not changed.





Superannuation lump sums paid from a taxed source to those aged 60 and over are tax-free (i.e. non-assessable non-exempt income).

Tax is still payable on superannuation lump sums paid to someone aged less than 60. The superannuation lump sum is split into the tax-free component and
taxable component. The tax-free component comprises the ‘crystallised segment’ and the ‘contributions segment’. The taxable component is determined
by subtracting the tax-free component from the total value of the superannuation interest. The taxable component may consist of an element taxed in
the fund or an element untaxed in the fund (e.g. paid from an untaxed fund).

Age of Recipient Superannuation Lump Sum
Tax-free Component Taxable Component 2017-18
Element taxed in fund Element untaxed in fund (excluding levies)
60+ Tax-free Tax-free 15%: $0 – $1,445,000 45%: $1,445,000+
55 – 59 Tax-free 0%: $0 – $200,000² 15%: $200,000+ 15%: $0 – $200,000² 30%: $200,000 – $1,445,000 45% $1,445,000+
0 – 54 Tax-free 20% of entire taxable component 30%: $0 – $1,445,000 45%: $1,445,000

1. Medicare levy of 2% is also payable.

2. The low rate cap amount of $200,000 is indexed annually.

3. The untaxed plan cap amount of $1,445,000 is indexed annually.

End benefits tax may still apply for certain untaxed superannuation funds (e.g. some public sector schemes) in respect of an element untaxed in a fund
(i.e. no contributions or earnings tax has been paid on this element).





ATO accepts as a result of Payne’s case that flight rewards received by employees from an employer paid expenditure are not assessable income.  

Any customer loyalty programme benefits earned as a result of private expenditure are not assessable.

ATO has indicated that it will closely scrutinise situations where the number of points accumulated in a year exceed 250,000 and arise from a business
relationship or business expenditure, whereby the arrangement has no commercial purpose other than to allow the recipient to receive reward points.

In such cases the
ATO will treat such rewards as assessable income or as a fringe benefit.




ATO’s view is that barter transactions are assessable and deductible to the same extent as other cash or credit transactions. For tax purposes the
ATO considers one trade dollar (T$1) to be equal to one Australian dollar, unless it can be shown that the T$1 is being traded consistently at
a different value. Barter Exchanges and transactions are coming under increased
ATO scrutiny as it is considered that income is not being properly accounted for.



Such payments take many forms and depending on their nature can be treated as assessable income, as a capital gain, as an adjustment to the cost base of
an asset, or tax exempt.

  • Periodical amounts of workers compensation are taxable
  • Lump sum amounts received for personal injury or wrong doing are not taxable as these are private or capital recipients
  • Personal injury cases now allow for structured settlements or orders which allow for such cases that formerly would have been settled for a lump sum
    to be delivered as tax-free periodic payments to an injured person.

This complex issue is dealt with at length in Taxation Ruling TR 95/35.




Tax planning opportunities exist as employees can receive limited bona fide redundancy and approved early retirement payments tax-free. Such payments are
not classified as Eligible Termination Payments.

Bona fide redundancy and approved early retirement payments in 2017/18 of up to $10,155 plus $5,078 for each completed year of service
with the employer are tax-free prior to turning 65.

The ATO’s view on what qualifies as genuine redundancy payments is contained in Taxation Ruling TR2009/2.



Usually a cash incentive paid to a business taxpayer to enter into a lease of premises will be assessable income.

Some non-cash incentives are tax-free as outlined in Tax Ruling IT 2631.

  • Rent free period
  • Interest free loan – provided it is a genuine business loan
  • Free holiday (this is not deductible to landlord)
  • Free fit out (if owned by landlord).

In cases where the free fit out is owned by the tenant the cash incentive will be assessable, but a deduction will normally be allowed for depreciation.




Where you or an associate make a profit on the sale of a motor vehicle informerly leased, an amount will have to be included in assessable income. There
are three choices available in determining the income (Tax Act Subdivision 20B).

If other formerly leased equipment is sold, the isolated transactions provisions may apply to make such a transaction assessable. If not the profit would
be taxed as a capital gain.



Where plant and equipment subject to depreciation is disposed of for an amount exceeding its written down value, the surplus is known as a “balancing adjustment”
and is assessable income. Low value pooled assets do not have a balancing adjustment. The value of the sale is used to reduce the value of the pool.
If the pool value becomes zero, a balancing adjustment will then occur. 




Accrued leave entitlements, payments received for transferring employee  

Advance rent, royalties  

Agency cancellation payments  

Allowances connected with employment  

Allowances paid to visiting fellow  

Australian Defence Force (ADF) income  

Austudy or ABSTUDY scheme payments  

Back pay  

Bad debt recoveries where deduction previously allowed  

Balancing adjustments (unless roll-over relief available): Depreciating assets  

Barter exchange (business) transactions  

Benefits (non-cash) provided to business taxpayers  

Betting or gambling wins of a taxpayer who is carrying on a business of betting, etc  

Bitcoin (business) transactions  

Bonus Shares  

Bonuses including cash bonuses on insurance policies  

Books debts, sale of

Bounty in carrying on business

Business proceeds

Cancellation of contract of service

Capital gains (net)

Clothing allowance from employer

Clubs, receipts from non-members


Commonwealth securities: Accrued interest on Special Bonds, Profit on sale or redemption of securities acquired at a discount after 30 June 1982, Surplus
on redemption, sale of non-interest bearing Treasury Notes

Compensation: Accident or disability policy payments, Cancellation, etc, ordinary contracts, Defamation, Interruption to business, Live stock loss, death,
etc, Reduction in salary (compensation), Standing timber, Tax liability, Trading stock losses, Workers Compensation

Contract adjustments for rates, land tax, etc

Crypto currencies

Damages: Compensation for loss of income

Debt defeasance arrangements

Defence Force members’ pay and allowances

Depreciable plant: broadly excess of sale price over written down value

Diesel Fuel Rebate Scheme payments

Discount employee share scheme shares

Electoral expenses reimbursed

Entertainment allowance from employer

Exceptional circumstances relief payments

Exchange gains

Film, disposal of copyright

Financial arrangements, First Home Save Accounts: Holder’s earnings, Government contributions, withdrawals from account

Foreign income of residents: CFC income

Friendly society education fund payments

Grants for research


Hire charges

Holiday pay

Housing allowance

Illegal transactions

Incentive payments

Income: Arrears, subject to possible tax offset, Capital asset sold for income, Interest in income under will, settlement, Periodical payments

Industrial dispute settlement payments

Industrial property (copyright, patent, etc) profit on exploitation

Interest on early payments on tax

Interest on overpayments of tax

Interest paid to non-residents

Interest: Non-accrual loans, Interest derived by body corporate

Investment income

Investment income from life policy

Investments profits, where acquired for profit-making by sale or in course of business

Jury attendance fees

Know-how, payments for sale or supply of

Land sale or exchange profits

Lay-by sales

Lease incentives

Lease income from “sale and leaseback”

Leased cars and other equipment, profit on disposal

Licence in patents, copyrights, designs, etc: Payment for grant of, Payment for use of

Liquidation distributions out of “income”

Loans to private company shareholders

Location allowance to employee

Long service leave payment

Lump sum damages or out-of-court settlement for loss of income

Lump sum for lost earnings

Luxury car lease notional finance charges

Meal allowances

Motor vehicle allowance

Natural resource payments to non-residents

Net capital gain

Newstart allowance

No-TFN contributions income

Non-cash benefits

Non-residents trust estate income

Overtime pay

Paid parental leave

Partnership, share of net income

Pensions, social security

Periodical receipts

Premium, non-refundable, received on issue of debt securities

Prizes or awards (business connection)

Procurement fees

Profit from business of trading in futures

Profit on disposal of car which taxpayer or an associate has previously leased

Profit on sale of other leased equipment

Profit on sale, exchange or other realisation of shares, land, houses, and businesses

Profits from isolated business or commercial transaction where profit-making purpose

Racehorse winnings including betting wins and prize money, where racing activities part of business Research grants

Rates, adjustment to vendor on sale

Refunds of rates, taxes and other items

Rents, including hire charges for plant, etc

Repayments of FMD amounts

Return to work payments

Rewards for services rendered


Royalties paid to non-residents


Securities gains on disposal or

Shares, profits on disposal

Sickness payments under disability policy, workers compensation

Social security payments

Subsidies (for inflation on pensions)

Subsidies for carrying on business

Superannuation contributions deducted from salary or wages

Superannuation fund income

Superannuation fund payments to employer-sponsor if contributions deductible


Travel allowance to employee

Trust income, adult beneficiary’s share

Tuition allowance received from employer

Unemployment benefits

Uniform allowance to employee


Wheat Industry Fund, refunded levies

Wine producer rebate

Work in progress payments; Generally, Retiring partner

Workers compensation

Youth allowance