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Edited version of private advice
Authorisation Number: 1051566502144
Date of advice: 14 August 2019
Ruling
Subject: Income tax - lump sum payment
Question
Will the amount of or any portion thereof paid pursuant to section 61 of the RWA be included in my assessable income?
Answer
No.
The lump sum compensation payment made pursuant to section 61 of the RWA for the death of a worker is not ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
The receipt of a lump sum compensation amount may give rise to a capital gain (statutory income) under Capital Gains Tax (CGT) event C2 (section 104-25 of the ITAA 1997) which relates to cancellation, surrender or similar endings. However, if the CGT event is in relation to compensation or damages received for any wrong or injury you suffer in your occupation, the capital gain or loss made is disregarded under subparagraph 118-37(1)(a)(i) of the ITAA 1997.
Therefore the lump sum compensation payment made pursuant to section 61of the RWA should not be included in your assessable income.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Your spouse died as a result of an accident on the premises of the employer.
You lodged an undated claim for compensation seeking death benefits in accordance with sections 59 and 61 of the RWA.
The compensating authority (acting as the Claims Agent for Return to Work Corporation State A) rejected the claim for compensation pursuant to section 7(1) of the RWA on the basis that the deceased was a sub-contractor and not an employee.
You lodged an application for review in the State Australian Employment Tribunal (XXET) in relation to the rejected claim (Workers Compensation Proceedings).
The SAET orders Employers Mutual Limited to pay you $x in respect of legal costs inclusive of counsel fees, in relation to the Workers Compensation Proceedings.
You made a claim for damages in relation to the death of your spouse by providing the notice of claim required by section 126A (1) and (2) of the Motor Vehicle Act 1959 (Motor Vehicle Damages Claim).
All parties have reached agreement in full and final settlement with respect to the Workers Compensation Proceedings and rights of recover in the Motor Vehicle Damages Claim, separate to the SAET consent orders and notations in a Deed of Release and Settlement.
The Deed of Release and Settlement order Employers Mutual Limited to pay you $x (settlement sum) in respect of the Workers compensation Proceedings which represents a part payment of the lump sum entitlement prescribed under section 61 of the RWA.
The Deed of Release and Settlement states that if you receive or deemed entitled to damages in the Motor Vehicle Claim for, or in connection with, the death of your spouse then Return to Work Corporation State A entitled to recover the settlement sum.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 section 104-25
Income Tax Assessment Act 1997 subparagraph 118-37(1)(a)(i)
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