Payments from income protection policies may be assessable income

Income protection payments from personal injury are, according to a very recent Federal Court case, assessable income under the Bankruptcy Act.

This means the bankrupt was liable to pay contributions!

Under the Bankruptcy Act, a bankrupt who earns over the prescribed income threshold, in this case $54,737, is liable to pay income contributions to the bankrupt estate.

Our very own Malcolm Field was the bankruptcy trustee and had assessed the bankrupt’s pre-tax income at $270,000. 

After some arithmetic, the total contribution payable that year was about $55k.

In arriving at that figure, the income protection insurance payout to the bankrupt was included. Naturally, the bankrupt disputed that assessment and applied to court.

The Court held that:

* income does not vest in the bankruptcy trustee; 

* rather it is payable by way of a statutory formula in Div 4B, Pt VI  Bankruptcy Act (eg section 139P);

* section 116 Bankruptcy Act is not the sole means for identifying divisible property; and

* therefore, it is unnecessary to resort to section 116(2)(g), which specifically excludes monies derived by personal injury as a form of divisible property.

Good work to all involved! Case link:


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