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Ruling

Subject: Assessability of workers compensation

Questions and Answers:

Will the compensation amount to be paid by the Employer pursuant to sections 67 and 76 of the Workers Compensation and Injury Management Act 1981 (WA) ('the Act') be included in your assessable income?

No.

Will any capital gain arising from the compensation amount be disregarded?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on:

1 July 2011

Relevant facts:

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

As a result of these injuries, the Employer has undischarged liabilities to you to pay weekly income maintenance and medical and other expenses pursuant to sections 67 and 76 of the WCRA.

You have indicated a willingness to accept a lump sum payment for the purposes of section 67 of the Act as redemption of your employer's liability to you in respect of your incapacity under the Act.

Upon the agreement being recorded under section 76 of the Act the following will apply:

(i) You will have no further entitlement to compensation under the Act for weekly payments arising out of the disability you have suffered.

(ii) You will have no further entitlement to any other claim to redemption of weekly payments arising out of the disability you have suffered.

(iii) You will have no further entitlement in respect of the disability referred to in the agreement to payments of expenses for medical or surgical, dental physiotherapy or chiropractic advice or treatment, first aid and ambulance expenses, medical requisites, charges for attendance and treatment by way of rehabilitation, charges for hospital treatment and maintenance, cost of artificial aids and travelling expenses.

(iv) You forfeit any entitlement you may have to compensation for a permanent disability arising out of the disability referred to in the agreement under Schedule 2 of the Act.

(v) You forfeit any entitlement you may have to pursue common law damages under Section 93D of the Act, in respect of the injury referred to in the agreement.

(vi) You will not be able to sue your employer for civil damages for arising out of your injuries.

The payout comprised three components:-

· a lump sum by way of redemption of liability to make future weekly payments as for permanent partial incapacity;

· a lump sum for future medical expenses and vocational rehabilitation;

· a lump sum for compensation payable under Schedule 2 Division 2A, in respect of an impairment mentioned in Schedule 2 item 51, representing a degree of permanent impairment from the injury.

Relevant 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)

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 amounts are to be paid under sections 67 and 76 of the Act. The money to be received will be in satisfaction of giving up your rights to weekly payments of compensation by way of redemption of liability to make future weekly payments as for permanent partial incapacity, future medical expenses and vocational rehabilitation, and in respect of an impairment representing a degree of permanent impairment from the injury.

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.

Section 6-5 of the ITAA 1997 will not apply to the compensation amounts.

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 amounts to be paid under sections 67 and 76 of the Act do not meet this description as they are 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 amounts.

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 compensation amounts to be paid under sections 67 and 76 of the Act meet this description.

Section 118-37 of the ITAA 1997 will apply to the compensation amounts so that any capital gain or capital loss you make will be disregarded.