P Gerber Ch
GW Beck M
No. 3 Board of Review
Dr. P. Gerber (Acting Chairman) and Dr. G.W. Beck (Member)
In this case the taxpayer suffered a severe disabling injury in the course of his employment in August 1976 which resulted - and this is in no way challenged by the Commissioner - in a total and permanent disability for work. As the injury arose out of or in the course of his employment, the taxpayer became entitled to weekly payments of compensation in an amount fixed at the time by the provisions of the Workers' Compensation Act of Queensland, and in all he received by way of weekly payments an amount of $4,966 in the year of income now under review.
2. The Commissioner treated this sum as being classically payments of an income nature and assessed the taxpayer accordingly. The taxpayer objected against the assessment of the weekly payments, and in a well drawn and concise objection submitted the reasons for his objection. To complete the factual narrative, it should be pointed out that after a determination by the Orthopaedic Board set up under the Workers' Compensation Act, a determination was made on 7 July 1978 that the taxpayer was totally disabled.
3. This in turn was followed by a letter from the supervisor of the Workers' Compensation Board for the State of Queensland dated 18 July 1978, which informed the taxpayer of the Board's determination and advised him that it had been recommended to pay him a lump sum payment in the sum of $16,943.38.
4. This figure needs to be explained in that it constitutes the difference between a maximum statutory amount then provided for by the amending Act to the Workers' Compensation Act and the sum of the weekly payments that the taxpayer had received prior to the determination by the Orthopaedic Board.
5. It was submitted forcefully and persuasively on behalf of the taxpayer that because the lump sum payment paid under the Act constituted a payment of capital and, in effect, the redemption of the balance of the worker's entitlement, the Commissioner should have treated the weekly payments simply as a pre-payment of the lump sum, with a consequence that these payments should likewise be characterised as payment of capital.
6. This Board has considerable sympathy with this argument but, regrettably, is unable to accede to it. There is a long line of authorities, both at Court and Board level, which have held that weekly payments of compensation are assessable income, and I need refer to only two of them:
(1957) 8 T.B.R.D. Case H76 and
(1959) 10 T.B.R.D. Case K34. In both the Board held unanimously that weekly payments of compensation have the quality of ``income'' and, quoting from the decision of (1959) 10 T.B.R.D. Case K34 the Board, consisting of Messrs. Burke, Smith and O'Neill, concluded that not only did the weekly payments awarded to the taxpayer have the quality of ``income'', but the fact that the arrears payable as a result of a determination, although being retrospective in their operation and paid in one amount, nevertheless did not alter their nature from that of ``income'' to that of ``capital''.
7. We have concluded that the mere fact that at some time after the receipt of weekly payments a determination was made by the Workers' Compensation Board to terminate the taxpayer's weekly payments and to commute them into a lump sum payment cannot alter the characteristics of the earlier weekly payments, and to convert them from one of ``revenue'' to one of ``capital''.
8. Whilst it is undoubtedly true that an award of a lump sum under the Workers' Compensation Act results in the payment of ``capital'' for purposes of the Income Tax Assessment Act, just as a payment for damages at common law for injury resulting in incapacity is one of ``capital'', there is nonetheless a substantial distinction between a lump sum payment made at common law and payment of Workers' Compensation. In the case of
Groves v. United Pacific Transport Pty. Ltd. and Thompson (1965) Qd. R. 62, Mr. Justice Gibbs, then a judge of the Supreme Court of Queensland, was asked to determine whether a lump sum payment received by way of insurance or indemnity or in respect of any loss of profit or income which would have been assessable income if the loss had not occurred was one which was subject to tax in reliance on sec. 26(j) of the Act. His Honour took the occasion to examine the characteristics of compensation for loss of earning capacity and held that because compensation was paid for loss of earning capacity as distinct from loss of income which would have been assessable income if the loss had not occurred, it followed that any lump sum payment thus received was not subject to assessment in reliance on sec. 26(j) of the Income Tax Assessment Act.
9. The Regulation 35 Statement of the Commissioner, in an alternative reason for disallowing the claim, states that the amount was correctly included in the taxpayer's assessable income in accordance with sec. 26(j). This view of weekly payments for
ATC 620compensation is, in the line of the authorities, correct. When one looks at the nature of weekly payments paid and payable under the Act, they have the classic characteristics of payments of assessable income not only in terms of the periodicity with which they are paid, but also in the manner in which they are quantified, namely, they bear a distinct ascertainable ratio to the actual income the taxpayer would have earned had he not been injured. We are therefore quite unable to accept the taxpayer's submission that the nature of these payments has somehow become transmuted into capital merely because, after some subsequent event, these payments were commuted or redeemed into a lump sum.
10. At one point we felt inclined to view this claim more favourably on the assumption that a right to a lump sum for total disability crystallized at the moment of injury. However, after a perusal of the structure of the Workers' Compensation Act of Queensland, and in particular cl. 19 attached to the schedule, which reads as follows:
``The liability for weekly payments for compensation may at any time be redeemed by the payment of a lump sum to be agreed on by the worker and the Office or failing agreement, to be fixed by an Industrial Magistrate at the request of either of them.''
that clause makes it clear that the only statutory right an injured workman has under the Act on proof that the injury arose out of or in the course of employment is the right to weekly payments, and this is true whether the injury results in total or partial incapacity. That right enures until the statutory maximum has become exhausted, after which no further payments arise. It is only at the option of the Workers' Compensation Board to redeem these payments so that until such time as this election has been exercised as the result of the application of a discretion vested in the Board, that this right to weekly payments continues up to the statutory amount.
11. Applied to the facts of this case, this taxpayer received weekly payments for a period of some 19 months, after which these payments were redeemed by the payment of a lump sum, giving him the balance of the statutory maximum. We are quite unable to concede that the exercise of an election by the Orthopaedic Board to redeem future payments by the payment of a lump sum can have the consequence contended for by the taxpayer, namely, that the weekly payments, which were unquestionably assessable income up to that point in time somehow become payments of capital or can be regarded as a ``prepayment of a lump sum''.
12. In these circumstances, the result for the taxpayer, who is not only seriously injured but totally incapacitated can only be viewed as unfortunate, but one which under the Act gives the Board no other option but to confirm the assessment.