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Edited version of your private ruling

Authorisation Number: 1012350572839

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Ruling

Subject: Assessability of workers compensation

Questions and answers:

Issue 1

Is the lump sum payment received under section 45A of the Workers rehabilitation and compensation Act 1986 (SA) assessable income?

Decline to rule - matter has already been considered by the Commissioner.

Issue 2

Will the lump sum you receive for the commutation of past and future liabilities be included in your assessable income?

No.

This ruling applies for the following periods:

Year ending 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You will receive a lump sum payment under section 45A of the Workers Rehabilitation and Compensation Act 1986 (WRCA) (SA).

You will receive a commuted lump sum payment under section 44(11) of the WRCA.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 6-5(2).

Taxation Administration Act 1953 Schedule 1, Paragraph 359-35(2)(b).

Reasons for decision

Issue1:-

Paragraph 359-35 (2) (b) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling does not have to be given where the matter sought to be ruled on is already being, or has been considered by the Commissioner for you.

As you have requested a private ruling on the same matter that the Commissioner has already issued a class ruling on, the Commissioner is not required to comply with the application for a private ruling.

Accordingly, the application for a private ruling under Division 359 of Schedule 1 to the TAA has been declined.

Issue 2:-

A receipt is assessable income if:

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Based on case law, it can be said that ordinary income generally includes receipts that:

An amount paid to compensate for loss generally acquires the character of that for which it is substituted (FC of T v Dixon (1952) 86 CLR 540).

Section 44 of the WRCA provides for weekly compensation payments to be payable to various specified dependents where a worker dies as a result of a compensable disability.

Compensation payable under section 44 of the WRCA is for the loss of the deceased's financial support, it is not compensation payable for the loss of your income. Therefore the amount is capital in nature.

In your case, you have reached a settlement with the deceased's employer for a lump sum amount in commutation for any entitlement you may have under section 44 of the WRCA. That amount is capital in nature and therefore not assessable as ordinary income under subsection 6-5(2) of the ITAA 1997.

Statutory income

The receipt of the lump sum compensation amount may give rise to a capital gain (statutory income) under CGT event C2 (section 104-25 of the ITAA 1997) which relates to cancellation, surrender or similar endings. However, a capital gain or loss made upon the ending of a CGT asset acquired on or after 20 September 1985 is disregarded under paragraph 118-37(1)(b) of the ITAA 1997, if the CGT event is in relation to compensation or damages received for any wrong, injury or illness suffered by a person or a relative of that person.

In your case, the compensation received is for a 'wrong, injury or illness' you have suffered, being the death of a worker on whom you were dependent.

Therefore, any capital gain or capital loss arising from the CGT event is disregarded under paragraph 118-37(1)(b) of the ITAA 1997 as it relates wholly to compensating you for a personal wrong, injury or illness.

Accordingly, the lump sum amount of compensation received will not be included in your assessable income.

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