| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051486639677
Date of advice: 6 March 2019
Ruling
Subject: Assessable income
Question 1
Will the amount or any portion thereof to be paid pursuant to section 33 and paragraph 54(1)(a) of the Return to Work Act 2014 South Australia (RWA 2014 SA) be included in your assessable income?
Answer
No.
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with receipts of ordinary income. It does not operate to include in assessable income amounts of a capital nature. The money to be received will be capital in nature and therefore not assessable income.
Additionally, as the criteria in subsection 82-135(i) of the ITAA 1997 is satisfied the payment is excluded from being an Eligible Termination Payment.
The other applicable sections, section 15-30 of the ITAA 1997 and the capital gains tax provisions of the ITAA 1997, also will not operate to make the payment assessable.
Therefore the payment you receive will not be included in your assessable income.
Question 2
Will the amount or any portion thereof to be paid for general damages be considered either ordinary income or a capital gain?
Answer
No.
The payment does not have the characteristics of ordinary income. As the settlement is an un-dissected payment for general damages caused through hurt and humiliation, the amount is considered to be a capital payment and not assessable under section 6-5 of the ITAA 1997. As the reason for the compensation payment was not for wrongful dismissal, the payment is not an eligible termination payment.
The disposal of an asset gives rise to a capital gains tax (CGT) event. However, paragraph 118-37(1)(b) of the ITAA 1997 disregards payments or receipts for the purposes of CGT where the amount relates to compensation or damages you receive for any wrong, injury or illness you suffer personally. As such, CGT implications with regards to the payment are disregarded.
Question 3
Will the amount or any portion thereof to be paid for the purpose of retraining be included in your assessable income?
Answer
No.
This portion of the lump sum is not a compensation payment and has not been paid for loss of earnings nor will it recur in the future. The payment is a contribution towards a private expense and is not included in your assessable income.
This ruling applies for the following period:
Year ended 30 June 2019.
The scheme commences on:
1 July 2018.
Relevant facts and circumstances
You sustained compensable disabilities said to have arisen from your employment.
You made a claim for compensation pursuant to the RWA, which was accepted.
You will receive a redemption offer pursuant to section 33 and paragraph 54(1)(a) of the Return to Work Act 2014 (SA).
You intend to sign a Deed of Settlement and Release under which you will receive a lump sum amount in exchange for full and final settlement of any claims against your former employer that may arise out of your South Australia Employment Tribunal (SAET) Proceedings.
The settlement sum described in the Deed is being calculated on the basis of an allowance of $X for re-training and $X for non-economic loss for pain and suffering/ hurt and humiliation.
As part of the agreement you have to resign.
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 82-135
Income Tax Assessment Act 1997 subparagraph 118-37