Edited version of private advice

Authorisation Number: 1052043523711

Date of advice: 13 October 2022

Ruling

Subject: Assessable income - lump sum compensation payment

Question

Is the lump sum payment you receive in relation to the Redemption Agreement under section 42 of the Workers' Rehabilitation and Compensation Act 1986 (South Australia) (WRCA 1986) assessable as ordinary income?

Answer

No.

Question

Is the lump sum payment of medical expenses you receive under section 32 of the WRCA SA 1986 assessable as ordinary income?

Answer

No.

It is accepted by the Commissioner, that the compensation payment you receive in accordance with section 42 of the Workers' Rehabilitation and Compensation Act 1986 (South Australia) is capital in nature and is not assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 15-30 of the ITAA 1997 does not apply to the payment.

The compensation payments relate to personal injury, and any capital gain can be disregarded under section 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 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were employed by a health institution.

You lodged a claim for workers compensation under the Workers' Rehabilitation and Compensation Act 1986 (South Australia) (WRCA SA 1986) in relation your injuries.

Your claim was rejected.

You filed an appeal in the Full Court of SA.

Your appeal was granted to have your original complaint reviewed. This matter is still ongoing.

You and your employer have reached an agreement for the redemption of the employer liabilities to pay you compensation under section 42 and 32 of the WRCA SA 1986 as follows:

1.    capital payment in the sum of $XXXX pursuant to section 42 of the WRCA SA 1986;

2.    a lump sum payment for medical expenses in the sum of $XXXX pursuant to section 32 of the WRCA SA 1986; and

3.    you will resign from your employment.

You anticipate receiving payment of the agreed amount prior DDMMYYYY.

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 118-37(1)