Edited version of private advice

Authorisation Number: 1052159328988

Date of advice: 22 August 2023

Ruling

Subject: Lump sum payment - assessable income

Question

Is the lump sum payment you will receive under sections 56 and 56A of the Return to Work Act 2014 (SA) (RWA) included in your assessable income?

Answer

No.

The assessable income of a taxpayer includes ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and statutory income under section 6-10 of the ITAA 1997 such as capital gains.

Taxation Determination TD 2016/18 Income tax: is a redemption payment received by a worker under the Return to Work Act 2014 (SA) assessable income of the worker? states that a redemption payment made pursuant to section 53 of the RWA is assessable as ordinary income as it retains the same character as the weekly payments that it redeems.

However, TD 2016/18 also states that a payment made pursuant to statutory compensation provisions dealing specifically with loss of future earning capacity such as those in section 56 of the RWA do not have the character of ordinary income. This is because they are based on a sum prescribed by statute which bears no relationship to the employee's current or former earnings.

The lump sum payment you will receive under sections 56 and 56A of the RWA is for loss of future earning capacity and is not a redemption payment under section 53 of the RWA.

Therefore, in accordance with TD 2016/18, the lump sum payment you will receive under sections 56 and 56A of the RWA is not assessable as ordinary income under section 6-5 of the ITAA 1997.

Also, as the lump sum payment directly relates to your personal injury, any capital gain made in relation to the payment is disregarded under paragraph 118-37(1)(a) of the ITAA 1997, and accordingly there is no statutory income amount under section 6-10 of the ITAA 1997.

This ruling applies for the following period:

Year ending 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You work for X and were injured on XX XXXX 20XX.

Your employer is self-insured and you have been receiving periodical payments.

Your injury was severe and due to recent changes to the RWA, you were offered an economic loss lump sum payment for loss of future earning capacity under sections 56 and 56A of the RWA.

You agreed to the sum of $X as calculated using a prescribed formula set out in sections 56 and 56A of the RWA and satisfied the required conditions of payments.

You will be XX years of age when the lump sum payment is made.

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)