Edited version of private advice

Authorisation Number: 1052091107181

NOTICE

This private ruling was revised following issue. This edited version has therefore been replaced with the edited version of the private ruling with the authorisation number of 1052099220676.

Date of advice: 15 March 2023

Ruling

Subject: Workers compensation proceeds

Question 1

Are the income benefits paid to you from Work Cover Queensland (WCQ) excepted assessable income under subsection 102AE(2) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Based on the facts provided any income benefits received from WCQ is excepted assessable income under subsection 102AE(2) of the ITAA 1936 and taxed at normal marginal rates.

Question 2

Are all earnings generated by the trust from investing the Workers Compensation proceeds (both lump sum and periodic Workcover payments) considered 'excepted trust income' under subsection 102AG(2) of the ITAA 1936 when distributed to the specified beneficiaries during their minority?

Answer

Yes.

Based on the facts provided any income derived from the investment of monies received from WCQ is excepted trust income under subsection 102AG(2) of the ITAA 1936 and taxed at normal marginal rates.

Question 3

Will the transfer of assets from the trust to the beneficiaries at the end of the trust constitute a Capital Gains Tax (CGT) event that is disregarded?

Answer

Yes.

The Lump Sum Dependant Payment/s received as a result of the father's death constitutes a CGT event that is disregarded under subsection 118-37(1) of the Income Tax Assessment Act 1997 (ITAA 1997). This subsection disregards any capital gain or loss made where the amount relates to compensation or damages you receive for any wrong, injury or illness you or your relative suffers personally. Therefore, the Lump Sum Dependant Payment will not be included in assessable income and will not need to be declared in The Trust's Tax Return.

This ruling applies for the following periods:

Income Year ending 30 June 20XX

Income Year ending 30 June 20XX

Income Year ending 30 June 20XX

Income Year ending 30 June 20XX

Income Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased passed away on XX/XX/20XX leaving no Will. He is survived by his spouse and children.

All children are under 18 years of age (the Specified Beneficiaries).

WCQ required the entitlements to be paid in trust to the children whilst they are minors (both in the form of a lump-sum payment and an income stream for the duration of their dependency).

The Trust (the Trust) was established by Deed on XX/XX/20XX (the Deed).

Under subclause XX of the Deed, the Trustee does not have the power to add new Beneficiaries.

Clause XX of the Deed provides the Trustee powers to amend the Trust subject to the restrictions specified in the Deed.

Under the Deed the Trustee is restricted to add capital to the Trust unless it's from the original workers compensation decision.

WCQ confirmed Child A as totally dependent.

WCQ assessed Child A as being entitled to a lump sum payment of $XX.

WCQ assessed Child A as being entitled to an additional lump sum payment of $XX.

WCQ assessed Child A as being entitled to a quarterly back payment entitlement of $XX.

WCQ assessed Child A as being entitled to ongoing quarterly entitlement of $XX per week.

The Deed established Child A as a Specified Beneficiary.

Under clauses X and X of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child A.

The funds for Child A are quarantined in a separate account.

WCQ confirmed Child B as totally dependent.

WCQ assessed Child B as being entitled to a lump sum payment of $XX.

WCQ assessed Child B as being entitled to an additional lump sum payment $XX.

WCQ assessed Child B as being entitled to a quarterly back payment entitlement of $XX.

WCQ assessed Child B as being entitled to ongoing quarterly entitlement of $XX per week.

The Trust Deed established Child B as a Specified Beneficiary.

Under clauses X and X of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child B.

The funds for Child B are quarantined in a separate account.

WCQ confirmed Child C as totally dependent.

WCQ assessed Child C as being entitled to a lump sum payment of $XX.

WCQ assessed Child C as being entitled to an additional lump sum payment of $XX.

WCQ assessed Child C as being entitled to a quarterly back payment entitlement of $XX.

WCQ assessed Child C as being entitled to ongoing quarterly entitlement of $XX per week.

The Trust Deed established Child C as a Specified Beneficiary. Under clauses X and X of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child D.

The funds for Child C.are quarantined in a separate account.

WCQ confirmed Child D as totally dependent.

WCQ assessed Child D as being entitled to a lump sum payment of $XX.

WCQ assessed Child D as being entitled to an additional lump sum payment of $XX.

WCQ assessed Child D as being entitled to a quarterly back payment entitlement of $XX.

WCQ assessed Child D as being entitled to ongoing quarterly entitlement of $XX per week.

The Trust Deed established Child D as a Specified Beneficiary.

Under clauses X and X of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child D.

The funds for Child D are quarantined in a separate account.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 102AE

Income Tax Assessment Act 1936 subsection 102AE(2)

Income Tax Assessment Act 1936 section 102AG

Income Tax Assessment Act 1936 subsection 102AG(2)

Income Tax Assessment Act 1997 section 118-37