Edited version of private advice

Authorisation Number: 1051829121925

Date of advice: 23 April 2021

Ruling

Subject: Income - lump sum compensation - workers compensation

Question 1

Is the lump sum payment you received or any portion in relation to sections 56 and 58 of the Return to Work Act 2014 (South Australia) (RWA) assessable as ordinary income?

Answer

No.

Question 2

Is the lump sum redemption of future medical expenses under the Return to Work Act 2014 (South Australia) (RWA) assessable as ordinary income?

Answer

No.

It is accepted by the Commissioner, that the compensation payments you received in relation to section 54, 56, and section 58 of the Return to Work Act 2014 (South Australia), are not assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

The compensation payments relate to personal injury, and any capital gain can be disregarded under paragraph 118-37(1)(a) of the ITAA 1997 as a capital gain or capital loss you make from a capital gains tax event relating directly to any of these is disregarded:

(a) Compensation or damages you receive for:

(i) any wrong or injury you suffer in your occupation, or

(ii) any wrong, injury or illness you or your relative suffers personally.

This ruling applies for the following period:

Year ending 30 June 2021

The scheme commences on:

1 July 2020

Relevant facts and circumstances

•         You were an employee for some 10 years

•         You suffered an injury to your lower back whilst lifting a box at work

•         Following the injury to your lower back you had a CT scan on your back, the results of the scan showed that you had suffered some spinal injury

•         You underwent an epidural to help with the pain

•         You underwent surgery on your back, to repair some of the damage

•         You reported that after the surgery your pain was around 50% better than it was pre surgery, however you continued to have ongoing pain

•         You had another MRI, that showed you had a displaced nerve root and disc bulge

•         You underwent further surgery

•         You reported you had a further deterioration to your pain management

•         Following the deterioration, you underwent another surgery and a large disc fragment was removed. As a result of the third surgery you seen some slight improvements

•         You underwent an MRI scan which found scaring around a nerve root

•         You returned to work but with modified duties, but you found it aggravated your back and was causing shoulder pain

•         You reported escalating pain in both your shoulders, with your right shoulder being the more painful, initially it was your left shoulder being the most painful

•         You underwent X-rays, ultrasound and injections on your damaged shoulder and they also found a small spur

•         After you received the cortisone injections on your shoulder you had a reduction in pain, however it has since started to regress in your right shoulder

•         As a result of the injuries you sustained whilst performing your work duties, you have been awarded payments in relation to section 54, 56, and section 58 of the Return to Work Act 2014 (South Australia)

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 paragraph 118-37(1)(a)