Edited version of private advice

Authorisation Number: 1052056660198

Date of advice: 18 November 2022

Ruling

Subject: Assessable income - lump sum compensation payment

Question 1

Is the lump sum payment you will 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 2

Is the lump sum payment of medical expenses you will 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 will receive in accordance with section 42 of the WRCA SA 1986 is capital in nature and 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 periods:

Income Year ended 30 June 20xx

Income Year ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

You have been in receipt of weekly payments of income maintenance pursuant to Division 4 of the WRCA SA 1986 and compensation for medical and other expenses of the kind referred to in section 32 of the WRCA SA 1986 from XXXX (as an agent of the Workcover Corporation of South Australia) ('the Corporation').

On XX January 20XX, the Corporation of South Australia invited you to consider redeeming your future weekly payments and future medical expenses by payment of a lump sum pursuant to section 42 of the WRCA SA 1987. At the time, you did not accept the offer because there remained outstanding injuries for which liability had not been settled.

You have since reached an agreement with the Corporation which covers liability for the compensable injuries you suffered while employed by XXX and XXX. The dates of these injuries are XX July 19XX, XX December 19XX, XX June 19XX, XX February 19XX and XX August 19XX.

The agreement is for the redemption of the following undischarged liabilities:

1.    Weekly payments in the sum of $XXX pursuant to section 32 of the WRCA SA 1986; and

2.    Medical expenses in the sum of $XXX pursuant to section 42 of the WRCA SA 1986.

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)