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Edited version of your private ruling
Authorisation Number: 1012131425037
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Subject: Assessability of compensation payment
Questions and answers
1. Will the compensation amount or any portion thereof paid pursuant to a workers compensation act be included in your assessable income?
No.
2. Will any capital gain arising from the compensation amount be disregarded?
Yes.
This ruling applies for the following periods:
Year ending 30 June 2012
The scheme commenced on:
1 July 2011
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 a work place injury.
You were assessed as having a work related impairment of less than 20%.
Your payment was in full and final settlement.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 15-30.
Income Tax Assessment Act 1997 Section 118-37.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with receipts of ordinary income. It does not operate to include in your assessable income any amount of a capital nature.
The lump sum amount you received was paid under a workers compensation act. The money received was in full and final settlement and you gave up the right to any future payments.
These are rights of a capital nature and the money received to compensate you for relinquishment was similarly of a capital nature. Therefore, section 6-5 of the ITAA 1997 does not apply to the lump sum amount.
Section 15-30 of the ITAA 1997
Section 15-30 of the ITAA 1997 operates to include in your 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 lump sum amount paid under section 187 of the Workers Compensation and Rehabilitation Act 2003 does not meet this description as it was not paid for loss of earnings but in satisfaction of the giving up of capital rights.
Section 15-30 of the ITAA 1997 does not apply to the lump sum 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 gains tax event 'relating directly.... to compensation or damages you receive for any wrong or injury you suffer in your occupation.'
The lump sum amount paid to you meets this description.
Section 118-37 of the ITAA 1997 applies to the lump sum amount so that any capital gain or capital loss you make will be disregarded.