Edited version of private advice

Authorisation Number: 1052200114145

Date of advice: 11 December 2023

Ruling

Subject: Assessable income - lump sum payment

Question

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

Answer

No.

Assessable income 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) [RWA] 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 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 section 56A of the RWA is not assessable as ordinary income under section 6-5 of the ITAA 1997. 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.

You do need to show the payment in your tax return.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You work for an employer and were injured.

You brought a compensation claim against your employer under the RWA.

You provided a copy of the Tribunal document between you as the applicant and your employer as the respondent.

Paragraph X of the Tribunal document provides that the parties have agreed that the respondent will pay the applicant a lump sum comprising of several types, including a payment pursuant to section 56 following an election under s 56A of the RWA Act.

You will make an election under s 56A to receive a lump sum payment to be compensated for the loss in future earning capacity.

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 118-37(1)(a)