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Edited version of private advice
Authorisation Number: 1051579480906
Date of advice: 16 September 2019
Ruling
Subject: Lump sum compensation payment paid pursuant to the Return to Work Act 2014 (South Australia) (RWA).
Question
Will the amount of $X 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) be assessable as either ordinary income or a capital gain?
Answer
No.
The lump sum payment has been received as compensation for a 'wrong or injury you have suffered in your occupation'. It bares none of the characteristics of ordinary income as it lacks any element of periodicity, recurrence or regularity, and nor is it paid to compensate for loss of income.
Therefore, the lump sum is capital in nature and will not be assessable as the capital gain is disregarded under subparagraph 118-37(1)(a)(i) of the Income Tax Assessment Act 1997, (ITAA 1997) as the CGT event is in relation to compensation or damages received for any wrong or injury you suffered in your occupation.
This ruling applies for the following period:
Year ended 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
During your period of employment you sustained injuries arising out of or in the course of your employment with the employer.
You have accepted a redemption of medical expenses offer pursuant to section 33 and paragraph 54(1)(a) of RWA to the value of $X.
As part of the agreement you ceased employment on X May 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5,
Income Tax Assessment Act 1997 Section 6-10,
Income Tax Assessment Act 1997 Section 15-30,
Income Tax Assessment Act 1997 Section 104-25, and
Income Tax Assessment Act 1997 Subparagraph 118-37(1)(a)(i).