Private ruling: Proceeds arising from a structured settlement
Date of advice: 30 June 2017
Published: September 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Does the payment the Taxpayer received from the relevant State Government, via the Attorney-General's Office satisfy subsection 292-95(3)(a)(i) of the Income Tax Assessment Act 1997? | A1: Yes

Relevant facts and circumstances: The Taxpayer contracted a virus in 20AA which led to them suffering severe medical injuries. The Taxpayer contracted the virus as a result of their employment. The Taxpayer requires life-long 24-hour a day care by professionals, specialist medical oversight, and is unable to ever work again. The Taxpayer's parent was appointed as the Taxpayer's administrator and therefore their legal personal representative. As the employer does not have a workers compensation scheme which allowed the Taxpayer to make a claim for their injury, a claim for compensation was made by the Taxpayer's solicitor to the government via the Attorney-General's office as the representative of the employer. The basis of the Taxpayer's claim was for compensation for damages suffered and to obtain reimbursement for the Taxpayer's past and future care, plus to provide for customised living arrangements required as a result of their condition. The Taxpayer's claim was submitted in 20BB. A payment was offered in recognition of the Taxpayer's claim in 20CC. As part of the offer it was recommended that a professional trustee be appointed to manage the payment. In the 20DD-EE income year a payment was received from the State Government via the Attorney-General's office. The payment was contributed to a complying superannuation plan within 90 days of receipt under the personal injury settlement provisions of section 292-95 of the Income Tax Assessment Act 1997 .

Relevant legislative provisions: Income Tax Assessment Act 1997 section 292-95. Summary | The payment the Taxpayer received from the State Government, via the Attorney-General's Office is a structured settlement payment for personal injury under subsections 292-95(3)(a)(i) of the Income Tax Assessment Act 1997 (ITAA 1997). Detailed Reasoning | Under section 292-95 of the ITAA 1997 payments arising from a structured settlement or orders for personal injury that are contributed to superannuation are excluded from the non-concessional contributions cap. | Subsection 292-95(1) of the ITAA 1997 states: | (a) the contribution arises from: | (i) the settlement of a claim that satisfies the conditions in subsection (3); or | (ii) the settlement of a claim in relation to a personal injury suffered by you under a law of the Commonwealth or of a State or Territory relating to workers compensation; or | (iii) the order of a court that satisfies the conditions in subsection (4); and | (b) the contribution is made within 90 days after the later of the following: | (i) the day of receipt of the payment from which the contribution is made; or | (ii) in relation to subparagraph (a)(i) or (iii)--the day mentioned in subsection (2); and | (c) 2 legally qualified medical practitioners have certified that, because of the personal injury, it is unlikely that you can ever be *gainfully employed in a capacity for which you are reasonably qualified because of education, experience or training; and | (d) no later than the time the contribution is made to a *superannuation plan, you or your *legal personal representative notify the *superannuation provider in relation to the plan, in the approved form, that this section is to apply to the contribution. | A settlement satisfies the conditions in subsection 292-95(3) of the ITAA 1997 if it is in the form of a written agreement between the parties to the claim and the claim is: | i. for compensation or damages for, or in respect of, personal injury suffered by the taxpayer; | ii. made by the taxpayer or his or her legal personal representative, and | iii. based on the commission of a wrong, or on a right created by statute. | There are three types of injury that a person can receive:- | (a) behavioural injury - one that involves physical injury (internal and/or external) and/or mental illness that is clearly discernible to a qualified medical practitioner; | (b) non-behavioural injury - hurt, distress, anxiety, etc., that flows from the death of, or serious injury to, a relative or close friend; wrongful dismissal; defamation; etc. This type of injury may have legal remedies under the law of torts (e.g., defamation, slander), statute (e.g., sexual harassment, discrimination), or contract (e.g., employment, professional negligence); and | (c) property injury - damage to a persons property. | Notwithstanding it may be said that all three types of injury may be personal, it is considered that only the first type (i.e. behavioural injury) falls within the meaning of the term personal injury. | The reasoning above is based on the decision by the Victorian Supreme Court in Graham v. Robinson [1992] 1 VR 279 ( Graham v. Robinson ) where the Court had to decide if emotional hurt (i.e. hurt, distress, public scandal, hatred, odium, ridicule and contempt) was a personal injury. At 281, Justice Smith stated: | In the absence of express authority, I have come to the conclusion that the expression personal injury does not extend beyond physical injury and mental illness to include emotional hurt. I am encouraged to this view by the fact that the law has rejected grief or sorrow as a form of injury which can be relied on to mount a claim in negligence: Mount Isa Mines Ltd. v. Pusey (1970) 125 CLR 383, at p. 394 and Jaensch v. Coffey (1984) 155 CLR 549, at p. 587. It is true that damages are awarded for pain and suffering in the typical personal injury case. They are awarded, however, where pain and suffering flow from and are connected with physical or mental injury and may therefore be said to be damages in respect of personal injury. | To reiterate, there must be a 'behavioural' type personal injury. From the above case, the term 'personal injury' is limited to physical and/or mental injury. | In this case, subsection 292-95(3) of the ITAA 1997 applies as the contribution arises from the settlement of a claim made by the Taxpayer for compensation for, or in respect of, personal injury suffered by them; and the settlement was in the form of a written agreement between the Taxpayer and their employer. | As per the facts, the Taxpayer suffered injury resulting in both physical and mental injuries arising from the contraction of a severe virus. | As a result of these physical injuries, the Taxpayer requires life-long 24-hour a day care by professionals, and requires specialist medical oversight for their lifetime. | Therefore; the Taxpayer satisfies the conditions under subsection 292-95(1)(a)(i) of the ITAA 1997 in relation to the payment they received.