Edited version of your private ruling

Authorisation Number: 1012430172888

Ruling

Subject: Compensation payment - personal injury

Question 1

Is the compensation payment awarded to you for a workplace injury assessable income?

Answer

No

Question 2

Will any capital gain arising from the lump sum payment be disregarded?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You were involved in a workplace accident.

You pursued a workplace injury claim against your employers and contractors.

Your claim was successful and compensation was granted by the court for damages.

The claim included the following:

· Non-economic loss

· Past economic loss

· Future economic loss

· Past loss for superannuation

· Future loss for superannuation

· Out of pocket expenses

· Past domestic assistance

· Future domestic assistance

· Future out-of-pocket expenses

· Fox v Wood

You have been paid one lump sum amount and expect to be paid a second lump sum amount.

You have provided a copy of the original court decision.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 6-5(2),

Income Tax Assessment Act 1997 Section 6-10,

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 102-5

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

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has been held to include income from providing 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 or relied upon

· have an element of periodicity, recurrence or regularity

· replace income.

A compensation amount normally assumes the nature of that which it is designed to replace. If the compensation is paid for the loss of a capital asset or amount, then it will be regarded as a capital receipt and not ordinary income.

In your case, you suffered a workplace injury. You have been awarded damages for a workplace injury that include non- economic loss, past and future economic loss, past and future loss of superannuation, out of pocket, past and future assistance, future out-of-pocket as a result of the injury.

The payments for the damages awarded were not earned as they do not relate to services performed. The payments are also a one-off payment and therefore it does not have the element of recurrence or regularity. Although the payments can be said to be expected, and perhaps relied upon, this expectation arises from pain, suffering and medical treatment required resulting from the injury, rather than from a relationship to personal services performed.

As such, the settlement amount you received is not assessable as ordinary income under section 6-5 of the ITAA 1997.

Statutory income is amounts that are not ordinary income but are included in assessable income by another provision. Section 102-5 of the ITAA 1997 provides that assessable income includes net capital gains for the income year. However, a capital gain made where the amount relates to compensation or damages you receive for any wrong, injury or illness you suffer personally is disregarded, paragraph 118-37(1)(b) of the ITAA 1997.

Accordingly, the settlement amount you received is not assessable as statutory income under section 6-10 of the ITAA 1997.

As the settlement amount you received is not assessable as either ordinary income or statutory income, no part of it is included in your assessable income.