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Edited version of your private ruling
Authorisation Number: 1012490478565
Ruling
Subject: Decrease in assessable income
Question 1
Will the compensation payments you received be excised from your assessable income in the years it was received?
No.
Question 2
Are you entitled to a refund of income tax paid on your workers' compensation payments?
Answer 2
No.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You suffered a personal injury and received regular insurance payments while incapacitated and at the time you were taxed accordingly.
You later commenced a damages action against the party responsible for your injury.
This action was settled out of court. You agreed to an amount as a full and final settlement of your claim. A condition of the settlement is that you repay the amount of payments that you have received.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 59-30
Reasons for decision
You received regular payments as a result of your injury. At the time these payments were made they were treated as ordinary income and you were taxed accordingly. Amounts that are income according to ordinary concepts are included in assessable income by section 6-5 of the Income Tax Assessment Act 1997 (ITAA 97).
Where a taxpayer is entitled to income and is correctly paid an amount, but subsequent events resulted in the taxpayer no longer being entitled to that income that income would be considered to be non-assessable income and an amendment to the income tax can be made.
However, section 59-30 of ITAA 1997 applies to exclude from being considered as non-assessable income, amounts to be repaid because you received a lump sum payment as settlement of your damages action.
In your case, you correctly received income in the form of regular payments for a period of time and this was considered to be assessable income and you were taxed accordingly. You have later accepted a lump sum settlement for your injury and a condition of the settlement is that you repay the workers' compensation payments you received.
The income that you received remains as assessable income by provision of section 59-30 of ITAA 1997. There will be no change to your assessable income and there will be no refund of income tax paid.