EDITED VERSION OF NOTICE OF PRIVATE RULING
Authorisation Number: 34357
This Ruling is a 'Private Ruling' for the purposes of Part IVAA of the Taxation Administration Act 1953.
YEAR(S) OF INCOME TO WHICH THIS RULING APPLIES:
TAX LAW:
Income Tax Assessment Act 1997 section 6-5.
Income Tax Assessment Act 1997 section 15-30.
Income Tax Assessment Act 1997 section 118-37.
WHAT THIS RULING IS ABOUT:
1. Will the amount (the compensation amount) or any portion thereof to be paid pursuant to sections 42 and 32 of the Workers Rehabilitation and Compensation Act 1986 (SA) (WRCA), be included in the taxpayer's assessable income?
2. Will any capital gain arising from the compensation amount be disregarded?
THE SUBJECT OF THE RULING:
The taxpayer sustained compensable disabilities said to have arisen from the taxpayer's employment.
As a result of these injuries, there are undischarged liabilities to pay weekly income maintenance pursuant to Division 4 of the WRCA and medical and other expenses pursuant to section 32 of the WRCA.
The taxpayer has indicated a willingness to accept two 'once and for all' payments which would extinguish any future liability the payer may have in respect of weekly income maintenance payments and medical expenses to the taxpayer.
The offer comprises two components:
(a) a lump sum in respect of future weekly income maintenance payments, and
(b) a lump sum in respect of future medical and other expenses.
COMMENCEMENT OF ARRANGEMENT:
1 July 2003
RULING:
1. Will the amount (the compensation amount) or any portion thereof to be paid pursuant to sections 42 and 32 of the WRCA, be included in the taxpayer's assessable income?
No.
2. Will any capital gain arising from the compensation amount be disregarded?
Yes.
EXPLANATION: (This does not form part of the Notice of Private Ruling)
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)
Section 6-5 of the ITAA 1997 deals with receipts of ordinary income. It does not operate to include in a taxpayer's assessable income amounts of a capital nature.
The compensation amount is to be paid under sections 32 and 42 of the WRCA. The money to be received will be in satisfaction of giving up your rights to weekly income maintenance payments and future medical expenses.
These are rights of a capital nature and the money to be received to compensate you for their relinquishment will similarly be of a capital nature. The Commissioner's present view with respect to this matter can be found in paragraph 5 of Taxation Determination TD 93/3. This paragraph states:
Lump sum payments in partial commutation of rights to weekly payments can be distinguished from payments received as a redemption of all the injured worker's rights under the Compensation Act. Such payments are of a capital nature and so are not included in assessable income. Nor are these payments assessable as income under the capital gains provisions of the ITAA. (See subsection 160ZB(1).)
Section 6-5 of the ITAA 1997 will not apply to the compensation amount.
Section 15-30 of the ITAA 1997
Section 15-30 of the ITAA 1997 operates to include in a taxpayer's assessable income:
any amount received by way of insurance or indemnity for the loss of an amount if:
(a) the loss amount would have been included in your assessable income; and
(b) the amount you receive is not assessable as ordinary income under section 6-5.
The compensation amount to be paid under sections 32 and 42 of the WRCA does not meet this description as it is not paid for loss of earnings but in satisfaction of the giving up of capital rights.
Section 15-30 of the ITAA 1997 will not apply to the compensation amount.
Section 118-37 of the ITAA 1997
Section 118-37 of the ITAA 1997 states that you may disregard any capital gain or capital loss from any Capital Gain Tax event 'relating directly .... to compensation or damages you receive for any wrong or injury you suffer in your occupation.'
The compensation amount to be paid under sections 32 and 42 of the WRCA meets this description.
Section 118-37 of the ITAA 1997 will apply to the compensation amount so that any capital gain or capital loss you make will be disregarded.
Disclaimer
The Register of Private Binding Advice is published as a public record of the binding advice issued by the ATO. Each piece of advice is based on a specific set of circumstances advised to the ATO and the law in force at the time of the advice, and is considered binding only in respect of the person/s or entity/ies on whose behalf the advice was sought. The Register is a historical record of advice provided, and is not updated to reflect changes in the law, withdrawal of advice or any other change in circumstance. Each piece of advice has been edited to avoid disclosing the identity of the person or entity on whose behalf advice was sought and published advice may therefore not disclose all the relevant facts or circumstances on which the advice was based. For these reasons, advice published in this Register cannot be relied upon as precedent for any other person or entity.