[GNC] Are insurance proceeds income?

David Cousens davidcousens at bigpond.com
Tue Sep 17 03:00:46 EDT 2019


Not sure about the rest of the world but in Australia it is highly dependent
upon the type of insurance and the items being insured and whether it is
personal insurance or business insurance. This should not be construed as
advice, but just as an sketchy outline of the broad principles here. Consult
the ATO or and tax authorities in your jurisdiction and your CPA .

E.g. Income protection insurance payouts and where it is compensation for
the occurrence of a specific event would generally be regarded as income and
taxed as income. For lump sum payments in arrears there are provisions here
for apportioning the payout to the years the income they replace would have
been received in and taxing at the rates relevant for that year. 

All other insurance payouts are generally regarded as being capital in
nature. In this case the tax treatment varies depending upon whether the
asset is disposed of (destruction or loss- depends whether there was a
capital gain or loss - asessed for capital gains tax), retained with a
permanent reduction in value (compensation is generally regarded as a
reduction in the assets cost base), compensation received on the disposal of
a right to seek compensation (e.g. liabilities arising out of negligence -
compensation is usually equal to costs incurred and no capital gain or loss
in incurred - no CGT), compensation for any other act,   transaction or
event (covers things like life insurance payouts, injury and sickness
policies  - these are normally exempt from capital gains provisions). This
is covered by several different provisions of various taxation acts and
taxation rulings - i.e. it is very complex.

Many policies also may have components which are income in nature and others
which are capital in nature so proceeds in a particular case have to be
broken down into the specific components and treated accordingly.

Insurance payouts for personal items are not generally taxed under income
provisions unless the items insured are income producing.

My guess is other jurisdictions will have similar broad principles but are
likely to differ significantly in the detail and mechanisms. You really need
competent professional advice in dealing with this.

David Cousens



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David Cousens
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