Edited version of your private ruling

Authorisation Number: 1011985613240

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Ruling

Subject: Assessability of workers compensation

Questions & answers:

1. Will the lump sum redemption amounts or any portion thereof to be paid pursuant to sections 24 and 27 of the Safety, Rehabilitation and Compensation Act 1988 (SRCA), be included in your assessable income?

No

2. Will any capital gain arising from the lump sum redemption amounts be disregarded?

Yes

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You sustained compensable disabilities said to have arisen from your employment.

Sections 24 and 27 of the Safety, Rehabilitation and Compensation Act 1988 (SRCA) provide that Comcare is liable to pay compensation to an employee for permanent impairment from injury and additional compensation for non-economic loss suffered as a result of the injury.

You have accepted a payment for permanent impairment and a payment for non-economic loss under section 27 of the SRCA.

You received a lump sum payment equal to the total of these amounts.

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 10-5

Income Tax Assessment Act 1997 Section 15-30

Income Tax Assessment Act 1997 Section 102-5

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

Reasons for decision

Ordinary income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income).

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

· are earned;

· are expected;

· are relied upon; and

· have an element of periodicity, recurrence or regularity.

The lump sum you received was not earned by you as it does not relate to services performed. It is not made in respect of economic loss. The payment is also a one off payment and thus it does not have an element of recurrence or regularity. It is made in respect of permanent impairment and non-economic loss as a result of the injury rather than from a relationship to personal services performed.

Accordingly, your lump sum payment is not ordinary income and is therefore not assessable under section 6-5 of the ITAA 1997.

Statutory income

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income also includes statutory income amounts that are not ordinary income but are included in assessable income by another provision.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list are section 15-30 of the ITAA 1997 which deals with insurance recoveries and section 102-5 of the ITAA 1997 which deals with capital gains.

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 the lost amount would have been included in the taxpayer's assessable income but was not assessable under section 6-5 of the ITAA 1997.

The lump sum payment you received would not have been included in your assessable income and therefore section 15-30 of the ITAA 1997 will have no application.

Capital gains

Compensation resulting from personal injury represents a disposal of an asset for capital gains tax (CGT) purposes. The disposal of an asset gives rise to a CGT event. However, paragraph 118-37(1)(a) of the ITAA 1997 disregards payments or receipts for the purposes of CGT where the amount relates to compensation or damages a taxpayer received for any personal wrong, injury or illness they suffer in their occupation.

The lump sum payment you received was for a personal wrong, injury or illness in the form of permanent impairment and non-economic loss which arose from your employment. This is considered to be a personal wrong, injury or illness in respect of your occupation at the time. Therefore any capital gain or capital loss you make will be disregarded for the purposes of CGT.