Edited version of private ruling

Authorisation Number: 1012439636903

Ruling

Subject: Assessability of workers compensation and Centrelink benefits

Questions and answers:

1. Does your assessable income include the benefits paid to you by Workcover?

Yes.

2. Are you entitled to amend your income tax return to exclude the benefits paid to you by Workcover?

No.

3. Does your assessable income include the gross amount of Centrelink benefits paid to you?

Yes.

4. Should the amount of benefits repaid to Centrelink from your lump sum workers compensation settlement amount be excluded from your assessable income?

No.

This ruling applies for the following period:

1 July 2010 to 30 June 2012.

The scheme commenced on:

1 July 2010.

Relevant facts and circumstances:

You were injured at work and lodged a claim for workers compensation.

Because of your workplace injury, you received workers compensation payments from WorkCover in the relevant State, as well as various Centrelink payments.

The full amount of each payment made to you by Centrelink was taxable income.

You correctly included the workers compensation and Centrelink benefits in your assessable income when you lodged you income tax return.

You entered into an agreement (the agreement) with WorkCover. Under the terms of the agreement:

· you accepted a lump sum amount (the settlement sum) in full and final settlement of your workers compensation claim,

· WorkCover was not entitled to a refund of any of the benefits paid to you, and

· amounts owing to Centrelink and Medicare were deducted from the settlement sum.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-20

Income Tax Assessment Act 1997 Section 11-15

Income Tax Assessment Act 1997 Subdivision 52-A

Income Tax Assessment Act 1997 Section 52-10

Income Tax Assessment Act 1997 Section 52-15

Income Tax Assessment Act 1997 Section 52-40

Income Tax Assessment Act 1997 Section 59-30

Reasons for decision

Assessable income and exempt income - general

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes the ordinary income they derive directly or indirectly from all sources, whether in or out of Australia, during an income year.

Receipts that are considered ordinary income include salary and wages, weekly workers compensation payments paid in lieu of salary or wages lost through a workplace injury, and social security benefits paid by Centrelink.

You received workers compensation payments from WorkCover. These workers compensation payments are considered to be ordinary income and are included in your assessable income in the year you received them under the provisions of section 6-5 of the ITAA 1997. You correctly declared these amounts in the relevant income tax returns.

Section 6-20 of the ITAA 1997 provides that some amounts that would otherwise be assessable as ordinary income under the provisions of section 6-5 of the ITAA 1997 are exempt income (and therefore not included in a taxpayer's assessable income) if the amount is made exempt from income tax by a law of the Commonwealth of Australia.

Section 11-5 of the ITAA 1997 contains the list of provisions of classes of exempt income. Included in the list is Subdivision 52-A of the ITAA 1997 which deals specifically with payments made under the Social Security Act 1991.

Section 52-10 of the ITAA 1997 includes a table that details the taxation treatment of various social security payments.

The table in section 52-10 of the ITAA 1997 specifies that where the social security payment is an ordinary payment, only the supplementary amount of the payment (if applicable) is exempt from income tax. An ordinary payment is one that is made to you for reasons not associated with the death of another person.

Items 1 and 3 in the table in section 52-15 of the ITAA 1997 specify the circumstances that must exist for any portion of a payment for the Centrelink benefit you received to be a supplementary amount.

The Centrelink benefit you received was not paid to you because of the death of any person. Rather, it was paid to you because of your workplace injury. That is clear because of the fact that you had to repay the amounts to Centrelink from the settlement sum. Accordingly, the payments are ordinary payments for the purposes of Subdivision 52-A of the ITAA 1997.

As ordinary payments, the Centrelink benefit you received is fully assessable, unless any portion of it was a supplementary amount. The amounts paid to you were fully assessable. That is, no amount was paid as a supplementary amount.

As an ordinary payment that did not include a supplementary amount, the full amount of the Centrelink benefit you received is included in your assessable income in the year you received the payments under the provisions of section 6-5 of the ITAA 1997.

You have correctly declared the relevant amount in your income tax return.

Repayment of amounts declared as assessable income

Where there has been a repayment of amounts previously declared as assessable income, the provisions of section 59-30 of the ITAA 1997 must be considered to determine whether or not any relevant income tax assessments can be amended.

To this end, section 59-30 of the ITAA 1997 provides that amounts that were previously treated as assessable income and which must be repaid are not assessable income. However, subsection 59-30(3) of the ITAA 1997 specifies this does not apply to taxpayers who must repay an amount because they received a lump sum as compensation or damages for a wrong or injury suffered in their occupation.

As discussed above, you received Centrelink benefits and those benefits have been correctly included in the relevant income tax return. As a result of the agreement you entered into, the amounts paid to you by Centrelink were deducted from the settlement sum and repaid to Centrelink.

As detailed in the agreement, the settlement sum was paid to you in full and final settlement of your workers compensation claim. Accordingly, the amount is considered to have been paid to you as compensation or damages for a wrong or injury suffered in your occupation and the provisions of subsection 59-30(3) of the ITAA 1997 apply to prevent you from amending your income tax return by removing the repaid amounts from your assessable income.

Conclusion

The workers compensation payments and Centrelink benefits paid to you are assessable as ordinary income and were correctly included the relevant income tax returns for those years.

Under the provisions of subsection 59-30(3) of the ITAA 1997, you are not entitled to amend your income tax returns to remove the amounts repaid to Centrelink from your assessable income.

As no amount was actually repaid to WorkCover, there is no entitlement for you to amend either income tax return of that basis. In any event, for the reasons discussed above, subsection 59-30(3) of the ITAA 1997 would apply to prevent such an amendment had there been a repayment of benefits paid by WorkCover from the lump sum you received

Your income tax assessment for the relevant year is correct.