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Edited version of your written advice
Authorisation Number: 1051256625394
Date of advice: 25 July 2017
Ruling
Subject: Workers compensation payment
Question
Are the amounts paid to you pursuant to section 294 of the Workplace Injury Management and Workers Compensation Act 1998 (X) assessable income?
Answer
Yes.
This ruling applies for the following period
30 June 2017
The scheme commences on
1 July 2016
Relevant facts and circumstances
You had a claim for workers compensation dealt with by theRelevant Workers Compensation Commission in late 2016.
The agreement, reached in accordance with Rule 15.9(1) of the Workers Compensation Commission Rules 2011 was determined a follows:
The Workers Compensation Commission issued a Certificate of Determination in late 2016 which outlined the following:
1. The respondent is to pay you weekly payments of compensation of as follows:
a. Weekly benefits.
b. The respondent is to pay the applicant’s expenses pursuant to s60 of the Workers Compensation Act 1987 upon production of accounts, receipts and/or Medicare notice of charge.
The Certificate of Determination was issued pursuant to section 294 of the Workplace Injury Management and Workers Compensation Act 1998.
You received a lump sum payment with no indication that any tax had been withheld.
Relevant legislative provisions
Section 6-5 of the Income Tax Assessment Act 1997
Reasons for decision
Issue
Workers Compensation payment
Reasoning
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income).
The courts have identified a number of factors which indicate whether an amount has the character of income according to ordinary concepts.
A frequent characteristic of income receipts is an element of periodicity, recurrence or regularity (FCT v. Dixon (1952) 86 CLR 540; (1952) 10 ATD 82).
One or more of the following characteristics will combine with periodicity to give an amount an income nature:
● it is made in substitution of income;
● it is made to provide financial support, for example, as an income supplement; or
● it is received in circumstances where the recipient has an expectation of receiving the payment on a regular basis so that the recipient is able to depend upon the payment for his or her regular expenditure.
Payments for rendering personal services, such as salary or wages, are ordinary income and are included in assessable income under section 6-5 of the ITAA 1997.
An amount paid to compensate for loss generally acquires the character of that for which it is substituted. Compensation payments, such as workers compensation, which substitute income, have been held by the courts to be income under ordinary concepts (FC of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142).
Taxation Determination TD 93/58 outlines the circumstances under which the receipt of a lump sum compensation/settlement payment is assessable as ordinary income. The determination states that where the compensation payment is for loss of income, the amount is assessable as ordinary income. Where a portion of a lump sum payment is identifiable and quantifiable as income, that portion of the payment will be assessable.
In your case the payment made to you, even though being a lump sum payment, was compensation intended to replace the wages you would have normally earned. Section 294 of the Workers Injury Management and Workers Compensation Act 1998 (X) provides an entitlement to weekly compensation payments.
The information supplied in the certificate of determination by Workers Compensation Commission sets out how the lump sum payment was dissected. It shows that the payment was in relation to your entitlement to compensation pursuant to section 294 of the Workers Injury Management and Workers Compensation Act 1998 (NSW). This makes the payment identifiable and quantifiable as income.
Therefore, the lump sum amount you received pursuant to section 294 of the Workers Injury Management and Workers Compensation Act 1998 (X) is assessable under section 6-5 of the ITAA 1997.
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