Edited version of private advice

Authorisation Number: 1051995004911

Date of advice: 24 June 2022

Ruling

Subject: Lump sum compensation payments

Question 1

Is the lump sum redemption of future medical expenses under the Return to Work Act 2014 (South Australia) (RWA) subject to income tax or capital gains tax?

Answer

No. It is accepted by the Commissioner that the compensation payments you received in relation to section 54 of the RWA is 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.

Question 2

Is the amount of or any portion thereof paid as a Retraining Allowance subject to income tax or capital gains tax?

Answer

No. This amount is not ordinary or statutory income and not a compensation payment. This amount will not recur in the future and is a contribution towards a private expense. Therefore, you are not required to include the amounts in your assessable income.

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 at for approximately XX years.

During the course of your employment, you sustained injuries in the work, namely back pain, lumbago, and sciatica.

You reported the injury to your employer immediately and were advised to seek medical advice and/or treatment from a doctor. You were diagnosed with a torn and protruding disc in your back which was hitting the nerve.

You took X-X weeks of leave.

You received two cortisone injections and attended several physiotherapy appointments for approximately 7-8 months after you sustained the injury.

During this time, you were also visiting a spine specialist, whose opinion was that you could not return to your role at your previous employer. The disc is still quite severely damaged and protruding. If the condition of your injury worsens, you may experience symptoms including incontinence and may require surgery.

You were awarded payments totalling $XX,XXX:

•         Weekly payments redeemed by a capital payment of $XX,XXX

•         Compensation for medical and other expenses redeemed by a capital payment of $XX,XXX

•         Retraining allowance of $X,XXX

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 subsection 118-37(1)(a)

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