Edited version of private advice

Authorisation Number: 1052322491543

Date of advice: 8 November 2024

Ruling

Subject: Assessable income

Question 1:

Is the Settlement Sum assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

No.

Question 2:

Is any capital gain or capital loss you make on receiving the Settlement Sum disregarded under paragraph 118-37(1)(a) of the ITAA 1997?

Answer:

Yes.

In summary, the Settlement Sum is not assessable because:

•                     It is capital in nature and is therefore not assessable as ordinary income under section 6-5 of the ITAA 1997; and

•                     Any capital gain or capital loss arising on the receipt of the Settlement Sum is disregarded under paragraph 118-37(1)(a) of the ITAA 1997 as you received the Settlement Sum for medical expenses in relation to your injuries.

This ruling applies for the following period:

Year ending 30 June 20XX.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances

You sustained work injuries while you were an employee of a state government department (the Employer).

Prior to the redemption agreement being prepared, you had made claims in relation to your injuries and had previously received weekly payments that had already ended.

A draft redemption agreement (the Agreement) was prepared between you and the State Government in which the Employer is located (the State) which includes the following information:

•                     You had experienced injuries in relation to your employment with the Employer in several years and had resigned from your employment due to your medical issues.

•                     The State has undischarged liabilities to pay compensation for medical and other expenses to you of the kind referred to in Section 33 of the Return to Work Act 2014 (SA) in relation to several claims.

•                     An agreement has been reached for the redemption of the State's liabilities for the State to pay you a specified amount (the Settlement Sum) under section 33 of the Return to Work Act 2014 (SA) pursuant to section 54 of the Return to Work Act 2014 (SA)

•                     You had obtained the relevant professional, financial and health practitioner advice; and

•                     You acknowledged that on the receipt of the Settlement Sum that the State will be wholly discharged from any further liability to make the expenses of the kind referred to in section 33 of the Return to Work Act 2014 (SA)

You will accept the offer of the Settlement Sum in accordance with the redemption agreement, which will be paid under section 54 of the Return to Work Act 2014 (SA).

You will receive the payment of Settlement Sum during the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 subsection 6-15(1)

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-25

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 paragraph 118-37(1)(a)