Case: CSR Ltd v Eddy [2005] HCA 64 ; (2005) 80 ALJR 59
Outcome: cited
In Groves v United Pacific Transport, the plaintiff apparently argued that the damages would be taxable under the predecessor to s 26(d) of the ITAA 1936 ([64] above). Gibbs J rejected the argument (at 64-65): 'The answer is in my opinion to be found by considering the true nature of the damages awarded in such a case. In Graham v Baker [1961] HCA 48 ; (1961) 106 CLR 340 , at pp 346-7, Dixon CJ, and Kitto and Taylor JJ said: "So far the matter has been discussed as if the right of a plaintiff whose earning capacity has been diminished by the defendant's negligence is concerned with two separate matters, i.e., loss of wages up to the time of trial and an estimated future loss because of his diminished earning capacity. It is, we think, necessary to point out that this is not so. A plaintiff's right of action is complete at the time when his injuries are sustained and if it were possible in the ordinary course of things to obtain an assessment of his damages immediately it would be necessary to make an assessment of the probable economic loss which would result from his injuries. But for at least two obvious reasons it has been found convenient to assess an injured plaintiff's loss by reference to the actual loss of wages which occurs up to the time of trial and which can be more or less precisely ascertained and then, having regard to the plaintiff's proved condition at the time of trial, to attempt some assessment of his future loss." Their Honours went on to say that "an injured plaintiff recovers not merely because his earning capacity has been diminished but because the diminution of his earning capacity is or may be productive of financial loss. Although it is usual and convenient in an action for damages for personal injuries to say that an amount is awarded for loss of wages or other earnings, the damages are really awarded for the impairment of the plaintiff's earning capacity that has resulted from his injuries. This is so even if an amount is separately quantified and described as special damages for loss of earnings up to the time of trial. Damages for personal injuries are not rightly described as damages for loss of income. It follows that in my opinion an award of damages for personal injuries does not come within the description of "an indemnity for or in respect of any loss of income" within s 26(j) of the Income Tax and Social Services Contribution Assessment Act and that such an award is not income in accordance with ordinary concepts so as to be taxable apart from the special provisions of that section. In determining what financial loss the plaintiff has probably suffered up to the date of trial by reason of the impairment of his earning capacity, as well as in considering what financial loss he is likely to suffer in future, I must therefore take his tax position into account.' See also Federal Commissioner of Taxation v Slaven [1984] FCA 31 ; (1984) 1 FCR 1 , at 22-23, per curiam ; CSR Ltd v Eddy [2005] HCA 64 ; (2005) 80 ALJR 59 , at 69 [30], per Gleeson CJ, Gummow and Heydon JJ; Husher v Husher [1999] HCA 47 ; (1999) 197 CLR 138 , at 143 [7], per Gleeson CJ, Gummow, Kirby and Hayne JJ.