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Edited version of your private ruling
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Ruling
Subject: Assessability of workers compensation
Questions and Answers:
1. Will the compensation amount or any portion thereof to be paid by the employer pursuant to the Workers Compensation and Injury Management Act 1981("Act") (WA) be included in your assessable income?
No.
2. Will any capital gain arising from the compensation amount be disregarded?
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
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 weekly income maintenance and medical and other expenses pursuant to the Act
You have indicated a willingness to accept a lump sum payment as redemption of your employer's liability to you to make future weekly payments and future medical and other expenses.
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.
Reasons for Decision
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 amount is to be paid under the Workers Compensation and Injury Management Act 1981("Act"). The money to be received will be in satisfaction of giving up your rights to weekly payments of compensation by way of redemption of liability to make future weekly payments and medical and other expenses.
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 amount.
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 amount to be paid under the Act does not meet this description as it is 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 amount.
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 amount to be paid under the Act meets this description.
Section 118-37 of the ITAA 1997 will apply to the compensation amount so that any capital gain or capital loss you make will be disregarded.
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