Edited version of private advice

Authorisation Number: 1052412186806

Date of advice: 25 June 2025

Ruling

Subject: Compensation received from COVID-19 Vaccine Claims Scheme

Question 1

Is the compensation component paid under the COVID-19 Vaccine Claims Scheme for Past Lost Earnings assessable income?

Answer 1

Yes

Question 2

Is the compensation component paid under the COVID-19 Vaccine Claims Scheme for Future Lost Earnings assessable income?

Answer 2

Yes

Question 3

Are any of the other compensation components assessable income?

Answer 3

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

The Commonwealth has established the COVID-19 Vaccine Claims Scheme (Scheme). The COVID-19 Vaccine Claims Scheme Policy 2021 (Policy) is the policy in relation to the Scheme and describes the basis on which the Commonwealth may make a grant of financial assistance to a person who submits a Claim for Compensation.

The Scheme applies and Claims can be made in relation to individuals who received a COVID-19 Vaccine on or after 22 February 2021 through a Commonwealth Government Approved Program. Claims received by Services Australia are determined in accordance with the Policy.

Lost Earnings is defined in clause 2 of the Policy to mean:

... the amount of Income, calculated on a gross or pre-tax basis, which has not been, or will not be, received by the COVID-19 Vaccine Recipient most likely as a result of the Harm, but excluding:

(a) Income which has been or is entitled to be paid or reimbursed by a Third Party Payer;

(b) any paid sick leave entitlements;

....

The term Income (referred to in the definition of Lost Earnings) is defined in clause 2 of the Policy to mean the COVID-19 Vaccine Recipient's individual average weekly earnings received through their employment or business operations.

Pursuant to clause 9 of the Policy, Compensation for Lost Earnings is payable to a Clamant if:

(a)               the Claimant makes a Claim (using the Approved Claim Form);

(b)               the Decision Maker is reasonably satisfied that the COVID-19 Vaccine Recipient suffered Harm; and

(c)                the Decision Maker is reasonably satisfied that (among other things) the criteria under clause 19(1) of the Policy (for past Lost Earnings) or clause 19(3) of the Policy (for future Lost Earnings) are met.

In accordance with clause 19(1) of the Policy, the Claimant will be eligible for Compensation for past Lost Earnings if:

(a)               the COVID-19 Vaccine Recipient has suffered past Lost Earnings; and

(b)               the Claimant provides satisfactory evidence demonstrating that the COVID-19 Vaccine Recipient suffered past Lost Earnings.

In this regard, clause 19(2) of the Policy provides that satisfactory evidence is expected to include:

•                the COVID-19 Vaccine Recipient's employment or occupation at the time the Harm was suffered;

•                the source(s) of the COVID-19 Vaccine Recipient's Income impacted by the Harm;

•                evidence of the COVID-19 Vaccine Recipient's Income for both the period prior to the Harm being suffered and the period the Harm was suffered;

•                the amount of time that the COVID-19 Vaccine Recipient has not worked due to the Harm and periods of paid and/or unpaid leave; and

•                evidence from a Reporting Practitioner.

In accordance with clause 19(3) of the Policy, the Claimant will be eligible for Compensation for future Lost Earnings if:

(a)               the COVID-19 Vaccine Recipient is most likely to suffer Lost Earnings in the future; and

(b)               the Claimant provides satisfactory evidence demonstrating that the COVID-19 Vaccine Recipient is most likely to suffer such Lost Earnings in the future.

In this regard, clause 19(4) of the Policy provides that satisfactory evidence is expected to include:

•                evidence of the COVID-19 Vaccine Recipient's planned retirement age (if within the period affected by the Harm);

•                evidence of any anticipated promotions or increases in wages that are or were likely to occur during the period affected by the Harm suffered; and

•                evidence from a Reporting Practitioner.

Pursuant to clause 16(3)(h) of the Policy, evidence from the Reporting Practitioner (for the purposes of both clauses 19(2) and 19(4)) refers to a medical report which must include their opinion as to:

(i)             the past and future impacts and/or restrictions of the Harm on the COVID-19 Vaccine Recipient's ability to work (including whether they will be unable to work or only able to work on a reduced basis);

(ii)            the likely duration of those impacts and/or restrictions; and

(iii)           the extent to which those impacts and/or restrictions are most likely a result of the Harm and less likely as a result of the COVID-19 Vaccine Recipient's other circumstances

When calculating an entitlement to Compensation in respect of past Lost Earnings, the Assessor will assess:

(i)             the COVID-19 Vaccine Recipient's Income at the time the Harm was suffered;

(ii)            the number of hours or days the COVID-19 Vaccine Recipient was unable to earn Income or earned a reduced Income by reason of the Harm;

(iii)           the extent to which the exclusions in the definition of Lost Earnings apply; and

(iv)           based on the above matters, the Compensation for past Lost Earnings that should be paid having regard to the Maximum Compensation Benchmark.

When calculating an entitlement to Compensation forfuture Lost Earnings, the Assessor will assess:

(A)           the COVID-19 Vaccine Recipient's Income at the time the Harm was suffered;

(B)           the number of hours or days the COVID-19 Vaccine Recipient is expected to be unable to earn Income or earn a reduced Income by reason of the Harm;

(C)           and estimate the COVID-19 Vaccine Recipient's likely Income during the period in which they will be unable to earn their Income;

(D)           the extent to which the exclusions in the definition of Lost Earnings apply; and

(E)           based on the above matters, the Compensation for future Lost Earnings that should be paid having regard to the Maximum Compensation Benchmark;

For Lost Earnings, the Maximum Compensation Benchmark is an amount that is up to 3 times the Average Weekly Earnings Amount of $XX.

If the Decision Maker determines that Compensation is payable in respect of a Claim, an offer will be made to pay such Compensation and, subject to the execution of a Deed of Settlement pursuant to which the Claimant accepts the Decision Maker's determination to offer the Compensation Amount set out therein, the Commonwealth will pay the Compensation in a lump sum.

Where the Compensation Amount set out in the Deed of Settlement relates to multiple heads of Compensation claimed, it provides a breakdown of the Compensation attributed to each head of claim (including past and future Lost Earnings).

Clause 37(1) of the Policy notes that the tax treatment of receipt of an amount under the Scheme is a matter to be determined in accordance with the applicable tax laws.

You provided all required medical evidence to support that you developed a clinical condition recognised by the Therapeutic Goods Administration as covered by the Scheme.

Your claim was deemed payable for the amount of $X under the Policy. The amount was broken down as follows:

•                Past Lost Earnings: $X

•                Future Lost Earnings: $X

•                Out of Pocket Expenses Past: $X

•                Out of Pocket Expenses Future: $X

•                Gratuitous Attendant Care Services Past: $X

•                Gratuitous Attendant Care Services Future: $X

•                Loss of Capacity to provide Domestic Services Past: $X

•                Loss of Capacity to provide Domestic Service Future: $X

•                Paid Attendant Care Services Past: $X

•                Pain and Suffering: $X

Relevant legislative provisions

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

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Reasons for decision

Questions 1 & 2

Compensation for lost earnings

A payment is assessable income if:

•                it is income according to ordinary concepts (ordinary income) (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)), or

•                it is not ordinary income but through the operation of the legislation it is included in assessable income (statutory income)(section 6-10 of the ITAA 1997).

The legislation does not explain the meaning of 'income according to ordinary concepts', but a substantial body of case law exists which identifies likely characteristics. In the present context, the following basic notions are relevant:

•                whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient - and in the case of statutory injury compensation payments, the character of the payment is typically derived from the relevant scheme;

•                amounts that are the product in a real sense of any employment of, or services rendered by, the recipient (for example, salary or wages) are likely to be ordinary income; and

•                amounts paid to compensate for loss generally acquire the character of that for which it is substituted.

It follows that amounts paid to compensate for employment or business-related earnings forgone or lost are likely to be ordinary income.

The receipt of a lump sum compensation or settlement payment is assessable as ordinary income where the payment is compensation for loss of income only, or to the extent that a portion of the lump sum payment is identifiable and quantifiable as income. Therefore, where a lump sum compensation payment covers loss under multiple heads that are both income and capital in nature, apportionment is required if the sum can be dissected into the component parts.

There is a distinction between compensation for loss of income (which is assessable) and compensation for loss of income earning capacity (which is capital).

A payment will be compensation for a loss of income where the recipient has suffered a loss in earning capacity, either temporary or permanent, but the compensation is in respect of the loss of income only. A payment will be compensation for a loss of earning capacity where the taxpayer has a reduced capacity to earn income and the payment is made in respect of that loss. Amounts paid in respect of loss of future earning capacity do not have the character of ordinary income as they are based on a sum which bears no relationship to the recipient's current or former earnings.

A Claimant under the Scheme is eligible for Compensation for Lost Earnings if the COVID-19 Vaccine Recipient, most likely as a result of the Harm they have suffered, has not received or will not receive their gross (pre-tax) individual average weekly earnings they receive through their employment or business operations (i.e. they have suffered post Lost Earnings and/or are most likely to suffer Lost Earnings in the future).

The amount of the Compensation payable in respect of Lost Earnings largely depends on the COVID-19 Vaccine Recipient's Income at the time the Harm was suffered and the period during which they suffered and/or are expected to suffer a loss of Income.

The terms of the Policy relating to the Scheme describing the basis on which Compensation for Lost Earnings (both past and future) are payable uniformly point to a purpose of providing compensation in substitution for income which the COVID-19 Vaccine Recipient could otherwise have derived through employment or business operations had it not been for the Harm they suffered.

•                As the Compensation for Lost Earnings (both past and future) under the Scheme acquires the character of that for which it is substituted - that being employment or business operation earnings - it is income according to ordinary concepts and assessable income.

While it is the COVID-19 Vaccine Recipient's incapacity for work which provides the occasion for the replacement of lost income, the compensation payments for Lost Earnings (both past and future) are not concerned with any of the effects of injury save for loss of income. The Compensation for Lost Earnings provided by the Policy is in respect of a period of incapacity rather than for the loss of capacity itself.

The fact that the payments are received as a lump sum does not alter their nature or their inherent character from income receipts to capital receipts (and to the extent the Claimant makes a Claim under the Scheme for an additional payment that is capital in nature, the terms of the Deed of Settlement ensure that those multiple heads of Compensation claimed are dissected and capable of apportionment).

The compensation you received under the Scheme for both Past and Future Lost Earnings was for loss of income in respect of a period of incapacity rather than for the loss of capacity itself. Therefore, both compensation components are income according to ordinary concepts and consequently, assessable income.

We note the article you provided from a personal injury lawyer stating that personal injury settlements are tax exempt. That article is about common law personal injury claims and is correct. However, your claim is a statutory law claim and the courts have held that this can result in a different outcome (for example, Tinkler v. FC of T 79 ATC 4641; (1979) 10 ATR 411).

Question 3

Other compensation components

All other compensation components of the Scheme received do not replace income and therefore are considered to be capital in nature. Any capital gain is disregarded under subparagraph 118-37(1)(a)(ii) of the ITAA 1997 as the compensation was received for a wrong, injury or illness suffered personally. Consequently, the other compensation components are not assessable income.