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: http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2018/2018fca0976.
