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Ruling

Subject: Assessability of workers compensation

Questions and Answers:

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

No.

Will any capital gain that arose from the compensation amount be disregarded?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

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 had undischarged liabilities to you to pay weekly income payments in respect of that disability and expenses payable under the Workers Compensation and Injury Management Act 1981 ("the Act") Schedule 1 clauses 9,10, 17,18, 18A and 19.

You have accepted a lump sum payment for the purposes of section 67 and 76 of the Act as redemption of your employer's liability to you in respect of your incapacity under the Act.

The payout comprised two components:-

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

· a lump sum for expenses as are provided for in the Act, Schedule 1 clauses 9,10, 17,18, 18A and 19.

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.

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 amounts were paid under sections 67 and 76 of the Act. The money received was 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 and expenses as are provided for in the Act, Schedule 1 clauses 9,10,17,18, 18A and 19.

These are rights of a capital nature and the money you 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 paid under sections 67 and 76 of the Act do not meet this description as they were 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 Gain Tax event 'relating directly .... to compensation or damages you receive for any wrong or injury you suffer in your occupation.'

The compensation amounts 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 made will be disregarded.