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Edited version of your written advice
Authorisation Number: 1012890808318
Date of advice: 8 October 2015
Ruling
Subject: SA Workcover
Question
Will the amount or any portion thereof to be paid in regard to the costs of a retraining course pursuant to section 26 of the Workers Rehabilitation and Compensation Act 1986 (SA), be included in your assessable income?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
You will receive a lump sum payment towards the costs of a retraining course pursuant to section 26 of the Workers Rehabilitation and Compensation Act 1986 (SA) (WRCA).
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax assessment Act 1997 Section 6-10 and
Income Tax Assessment Act 1997 Section 118-37
Reasons for decision
The assessable income of an Australian resident includes ordinary income and statutory income from all sources, whether in or out of Australia (sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA1997)).
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.
Ordinary income has generally been held to include three categories, namely income from rendering 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, are relied upon or have an element of periodicity, recurrence or regularity.
Section 26 of the WRCA relates to rehabilitation programmes established or approved by the Workcover Corporation. Payments that may be made pursuant to section 26 include those to assist in the training and retraining of workers (subsection 26(3)(d)).
You will receive a lump sum payment towards the costs of a retraining course pursuant to section 26 of the WRCA and it is not considered that you will be giving up any capital rights to future payments by receiving this payment.
Although you may rely on this payment for your training needs, it is evident that the payment is not derived from your employment, is not earned by you, is not a substitute for income and will not recur in the future.
Therefore, the payment you receive will not be assessable as ordinary income.
Statutory income includes a capital gain. 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 amount paid under section 26 of the WRCA is not a compensation payment and will not be paid for loss of earnings.
Therefore, section 118-37 of the ITAA 1997 will not apply to this payment.
Further, there are no other provisions in the income tax legislation that will operate to include this amount in your assessable income.