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Edited version of private advice
Authorisation Number: 1051582028005
Date of advice: 25 September 2019
Ruling
Subject: Compensation
Question
Are the amounts paid to you pursuant to sections 36 and 37 of the Workers Compensation Act 1987 (NSW) assessable as ordinary income?
Answer
Yes.
This ruling applies for the following period(s)
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
Year ending 30 June 2023
The scheme commences on
1 July 2018
Relevant facts
You were employed by an organisation.
You experienced some medical issues and ongoing work pressures from 20XX onwards.
You were subject to allegations of professional misconduct.
Your dispute was ultimately resolved by way of a negotiated resignation.
You also undertook a claim for workers compensation.
The Workers Compensation Commission issued a Certificate of Determination - consent orders in 20XX which outlined the following:
The respondent will, on a voluntary basis and without admission of liability, pay:
1. Weekly payments of compensation to the applicant, as follows:
a) At the rate of $X per week pursuant to section 36 of the 1987 Act and
b) At the rate of $X per week pursuant to section 37 of the 1987Act and continuing.
2. Expenses in respect of reasonably necessary medical treatment on production of accounts, receipts and/or Medicare Notice of Charge pursuant to section 60 of the 1987 Act
You received a lump sum amount as a result of the Certificate of Determination.
You have provided a PAYG payment summary which includes the amount at label E.
In a letter dated 20xx 'A' advised you that an amount has been paid to you. The amount of $x representing the tax payable on this payment has been forwarded to the Australian Tax Office on your behalf.
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Relevant legislative provisions
Section 6-5 of the Income Tax Assessment Act 1997
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Ordinary income has generally been held to include 3 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; and
· Have an element of periodicity, recurrence or regularity.
Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997.
An amount paid to compensate for loss generally acquires the character of that for which it is substituted (FC of T v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts (FC of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142; Tinkler v. FC of T (1979) 10 ATR 411; 79 ATC 4641; Case Y47 (1991) 22 ATR 3422; 91 ATC 433).
Taxation Determination TD 93/58 outlines the circumstances under which the receipt of a lump sum compensation/settlement payment is assessable as ordinary income. The determination states that where the compensation payment is for loss of income, the amount is assessable as ordinary income. Where a portion of a lump sum payment is identifiable and quantifiable as income, that portion of the payment will be assessable.
In your case the payment is being made to you by 'A' is compensation intended to replace the wages you would have normally earned. Section 36 and section 37 of the Workers Compensation Act 1987 provide for entitlement to weekly compensation payments.
The information supplied in the certificate of determination by the Workers Compensation Commission sets out how the payments to you is calculated in relation to your entitlement to compensation pursuant to section 36 and section 37 of the Workers Compensation Act 1987.This makes the payment identifiable and quantifiable as income.
The amounts you receivedpursuant tosection 36 and section 37 of the Workers Compensation Act 1987 are assessable under subsection 6-5(2) of the ITAA 1997.