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Edited version of your private ruling
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Ruling
Subject: Assessability of workers compensation
Question 1:
Will the amount (the compensation amount) or any portion thereof to be paid by The Employer pursuant to sections 67 and 76 of the Workers Compensation and Injury Management Act 1981 (WA) ('the Act') be included in your assessable income?
Answer:
No.
Question 2:
Will any capital gain arising from the compensation amount be disregarded?
Answer:
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts:
You sustained compensable disabilities said to have arisen from your employment.
As a result of these injuries, the Employer has undischarged liabilities to you to pay an amount for permanent impairment pursuant to sections 67 and 76 of the Workers Compensation and Injury Management Act 1981 (WA) ('the Act').
You have indicated a willingness to accept a lump sum payment for the purposes of section 67 of the Act as redemption of your employer's liability to you in respect of your incapacity under the Act.
The payout is comprised of two components:-
a lump sum payable under Schedule 2 Division 2A of the Act , in respect of an impairment mentioned in Schedule 2 item 59, representing a degree of permanent impairment from the injury
a lump sum payable under Schedule 2 Division 2A of the Act , in respect of an impairment mentioned in Schedule 2 item 60, representing a degree of permanent impairment from the injury
Relevant provisions:
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 15-30.
Income Tax Assessment Act 1997 Section 118-37.
Explanation: (This does not form part of the notice of private ruling)
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)
Section 6-5 of the ITAA 1997 deals with receipts of ordinary income. It does not operate to include in a taxpayer's assessable income amounts of a capital nature.
The compensation amounts are to be paid under Schedule 2 Division 2A of the Act. The money to be received will be in satisfaction of giving up your rights in respect of permanent impairment from the injury.
These are rights of a capital nature and the money to be received to compensate you for their relinquishment will similarly be of a capital nature.
Section 6-5 of the ITAA 1997 will not apply to the compensation amounts.
Section 15-30 of the ITAA 1997
Section 15-30 of the ITAA 1997 operates to include in a taxpayer's assessable income:
any amount received by way of insurance or indemnity for the loss of an amount if:
(a) the loss amount would have been included in your assessable income; and
(b) the amount you receive is not assessable as ordinary income under section 6-5.
The compensation amounts to be paid under Schedule 2 Division 2A of the Act do not meet this description as they are not paid for loss of earnings but in satisfaction of the giving up of capital rights.
Section 15-30 of the ITAA 1997 will not apply to the compensation amounts.
Section 118-37 of the ITAA 1997
Section 118-37 of the ITAA 1997 states that you may disregard any capital gain or capital loss from any Capital Gain Tax event 'relating directly .... to compensation or damages you receive for any wrong or injury you suffer in your occupation.'
The compensation amounts to be paid under Schedule 2 Division 2A of the Act meet this description.
Section 118-37 of the ITAA 1997 will apply to the compensation amounts so that any capital gain or capital loss you make will be disregarded.
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