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Edited version of private advice
Authorisation Number: 1051818679485
Date of advice: 30 March 2021
Ruling
Subject: Lump sum compensation - workers compensation
Question
Is the lump sum payment you received or any portion in relation to sections 56 and 58 of the Return to Work Act 2014 (South Australia) (RWA) assessable as ordinary income?
Answer
No.
It is accepted by the Commissioner, that the compensation payments you received in relation to section 56, and section 58 of the Return to Work Act 2014 (South Australia), are not assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
The compensation payments relate to personal injury, and any capital gain can be disregarded under paragraph 118-37(1)(a) of the ITAA 1997 as a capital gain or capital loss you make from a capital gains tax event relating directly to any of these is disregarded:
(a) Compensation or damages you receive for:
(i) any wrong or injury you suffer in your occupation, or
(ii) any wrong, injury or illness you or your relative suffers personally.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You were an employee.
You were employed by an employer as a full time staff member.
You sustained an injury to your shoulder at work whilst putting garbage into an industrial bin which resulted in an incapacity.
The injury you sustained, stopped you from performing your normal work duties.
As a result of the incapacity, you started modified duties, however your condition continued to worsen.
Due to the injury worsening, you ceased your employment.
Due to your injuries, you have not been able to gain further employment.
You undertook an ultrasound on your shoulder, which revealed a Bursal impingement and a partial thickness tear in your shoulder.
You undertook an X-ray on your shoulder.
You were diagnosed with a rotator cuff dysfunction.
You underwent surgery on your shoulder to try to repair the damage done.
You were assessed for a permanent impairment.
The results of the assessment, it was deemed you suffered X% total impairment.
It was determined you would receive a lump sum payment, due to economic loss in relation to section 56 of the Return to Work Act 2014 (South Australia).
It was determined you would receive a lump sum payment, for permanent impairment in relation to section 58 of the Return to Work Act 2014 (South Australia).
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10
Income Tax Assessment Act 1997 paragraph 118-37(1)(a)
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