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Edited version of your written advice
Authorisation Number: 1051472389760
Date of advice: 11 January 2019
Ruling
Subject: Lump sum compensation
Question
Does the lump sum payment received for permanent impairment form part of your assessable income?
Answer
No.
Having considered the characteristics of the lump sum payment you received we have concluded the payment is not income according to ordinary concepts and is not assessable under section 6-5 of the Income Tax assessment Act 1997 (ITAA 1997). Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but may be assessable under another provision are called statutory income. Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(a) of the ITAA 1997 disregards payments or receipts for capital gains purposes where the amount relates to compensation or damages a person receives for any personal wrong, injury or illness you suffer in your occupation or personally. In your case, the payment was made to you for permanent impairment and the continued cost of care, and as such the payment will be exempt from capital gains tax under paragraph 118-37(1)(a) of the ITAA 1997.
This ruling applies for the following period:
Financial year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You were an Australian resident for taxation purposes.
You developed a medical condition and sought workers compensation in relation to this injury.
You died in XXXX.
Workcover Queensland accepted there was 100% permanent impairment attributable to the injuries sustained in the course of your employment.
Your estate accepted a lump sum compensation payment from WorkCover Queensland in relation to the injury. This is inclusive of $XXX as additional compensation towards the cost of continued care and assistance required by you.
The payment was made pursuant the Workers Compensation and Rehabilitation Act 2003.
Workcover Queensland provided the following breakdown of the payment;
The total amount of lump sum compensation to which the worker is entitled pursuant to the act comprises of;
1 latent onset lump sum
2 latent onset additional
3 latent onset amount
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 6-15
Income Tax Assessment Act 1997 Paragraph 118-37 (1)(a)
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