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Edited version of your written advice
Authorisation Number: 1012699797101
Ruling
Subject: Repaid income
Question 1
Can you exclude the amount repaid to Workcover from your assessable income in the 2011-12 and 2012-13 financial years?
Answer
No.
Question 2
Are you required to include the amount you received from Workcover in the 2013-14 financial year and subsequently repaid to Workcover in your assessable income in the 2013-14 financial year?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2011
Relevant facts
You were injured in a motor vehicle accident.
You received Workcover payments.
You have been awarded an amount of compensation from the other party's insurance company.
You were required to repay the Workcover amounts.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during that income year.
The payments you received from Workcover during the relevant financial years were paid to you as income support and were fully assessable in the year you received them.
In the case of Rayner v FC of T 40 ATR 1084 it was held that the periodic payments were rightly assessed when they were received. The repayment of the income had no tax consequences. The taxpayer in this case had the benefit of the income when it was originally received and he paid tax on that benefit at the time of receipt. In this case the taxpayer's submission overlooked the fact that he had received the income twice for his period of incapacity: the first when the income support payments were received; the second when he received damages.
Similarly in your case, you were paid income support payments by Workcover in the form of periodic payments. These payments were correctly assessed as taxable income in the years they were received.
You were further compensated when you received your lump sum payment. The amounts of periodic payments were subsequently repaid to Workcover. This repayment has no effect on tax law nor has the repayment under compensated you.
The repayment to Workcover should merely place you in the same financial position that you would have been had you only received the final compensation payment.
Therefore, you cannot exclude the amount repaid to Workcover from your assessable income in the relevant financial years. Furthermore, any Workcover payments you received in the 2013-14 financial year must be included as assessable income for that year. This is so even if the amounts were subsequently repaid from your compensation amount.