The Full Federal Court (Dowsett, Stone and Bennett JJ) has held that losses incurred by the taxpayer from his business as a financial planner could not be offset against payments made to him pursuant to a personal income protection insurance policy because of the operation of Div 35 (Non-commercial business activities) of ITAA 1997. Such payments (the "policy income") were payable because the taxpayer had been, since 1996, partially incapacitated for work. The taxpayer argued that the policy income was assessable income from his business activity for the income year 2003-2004.
In rejecting the taxpayer's argument, the Court said, at para 32, as follows:
"The policy income was received because he was unable to undertake the full range of business activity which he would have undertaken had he not fallen ill. It was derived from his incapacity to conduct business activity, not from the activity which he actually undertook. It follows that such income was not "from" his business activity for the 2003-2004 income year."
Watson v FCT  FCAFC 17 (Full Federal Court; Dowsett, Stone and Bennett JJ; 4 March 2010).