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Edited version of your private ruling
Authorisation Number: 1012528399624
Ruling
Subject: Assessability of workers compensation
Questions and Answers:
1. Will the lump sum redemption amounts or any portion thereof to be paid pursuant to sections 42 and 32 of the Workers Rehabilitation and Compensation Act 1986 (SA) (WRCA), be included in your assessable income?
No.
2. Will any capital gain arising from the lump sum redemption amounts be disregarded?
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts:
You sustained compensable disabilities said to have arisen from your employment.
As a result of these injuries, you are entitled to receive weekly income maintenance pursuant to Division 4 of the WRCA and medical and other expenses pursuant to section 32 of the WRCA.
You have indicated a willingness to accept two 'once and for all' payments which would extinguish any future rights you have to weekly income maintenance and medical expenses payments.
Relevant legislative 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 assessable income amounts of a capital nature.
The lump sum redemption amounts are to be paid under sections 32 and 42 of the WRCA. The money to be received will be in satisfaction of giving up your rights to weekly income maintenance payments and future medical expenses.
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 lump sum redemption amounts.
Section 15-30 of the ITAA 1997
Section 15-30 of the ITAA 1997 operates to include in 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 lump sum redemption amounts to be paid under sections 32 and 42 of the WRCA 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 lump sum redemption 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 lump sum redemption amounts to be paid under sections 32 and 42 of the WRCA meet this description.
Section 118-37 of the ITAA 1997 will apply to the lump sum redemption amounts so that any capital gain or capital loss you make will be disregarded.