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Edited version of private advice
Authorisation Number: 1051973531175
Date of advice: 14 April 2022
Ruling
Subject: Lump sum compensation payment
Question
Will the commuted lump sum payment of your future entitlement to weekly payments paid pursuant to subsection 59(11) of the Return to Work Act 2014 (SA) (RWA) be assessable as ordinary income or as a capital gain under any provision of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No. The commuted lump sum payment made to you is not assessable as ordinary income under section 6-5 of the ITAA 1997. The receipt of a lump sum provided in regard of a cancellation, surrender or similar endings can be regarded as a capital gains tax event C2 pursuant to section 104-25 of the ITAA 1997. However, subparagraph 118-37(1)(a)(ii) of the ITAA 1997 provides that any CGT event in relation to compensation or damages received for any wrong, injury or illness suffered by a person or relative of that person is disregarded, therefore you are not required to include this amount in your assessable income.
This ruling applies for the following period:
Year ending 30 June 2022
The scheme commences on:
1 July 2021
Relevant facts and circumstances
Your spouse died as a result of a compensable workplace incident.
You have the right to receive weekly compensation payments from the Return to Work SA Corporation pursuant to section 59 of the RWA.
You applied to commute these weekly compensation payments to a lump sum in discharge of the Return to Work SA Corporation's liability to provide weekly compensation payments for all time pursuant to section 59(11) of the RWA.
Relevant legislative provisions
Income Tax Assessment Act section 6-5
Income Tax Assessment Act section 6-10
Income Tax Assessment Act section 104-25
Income Tax Assessment Act paragraph 118-37(1)(a)