Private ruling: Compensation payments
Date of advice: 6 February 2026
Published: 30 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the compensation you received from an insurance company for injuries incurred in a motor vehicle accident assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Compensation payments received by you for the loss of your Airforce Reserve income are assessable income under section 6-5 of the ITAA 1997, as they are not exempt from income tax under section 51-33 of the ITAA 1997.

Relevant facts and circumstances: In the 20XX income year you were working as an Air Force Reservist. Your income was exempt from income tax under section 51.5 of the ITAA 1997 as per item 1.4. On XX/XX/20XX you were hit by a motor vehicle. You sustained injuries which required you to stay under hospital supervision. You continued your recovery at home under the supervision of your General Practitioner (GP). You were unable to return to work for X months. On XX/XX/20XX, you submitted a claim with the motor vehicle owners' insurance company, for personal injury benefits. A provided weekly benefit fact sheet from the insurance company included the following information: What are weekly benefits? If you've been unable to work or returned to some capacity of work because of an injury sustained in a motor incident occurring in this state, you may be entitled to loss of income payments known as 'weekly benefits'. Regular weekly benefits compensate you for some loss of earnings as a result of the injury sustained in the incident. These payments will help you pay your bills so you can focus on your recovery. Who is entitled to weekly benefits? To be entitled to weekly benefits, you must be an 'earner' and have suffered a loss of earnings as a result of an injury sustained in the incident. What is pre-accident weekly earnings? Pre-accident weekly earnings (or PAWE) is the average of how much you were earning over the 12-month period immediately before the incident. The calculation of PAWE is based on the information provided by you. In an email dated XX/XX/20XX, the insurance company requested that you provide 52 weeks of income history from your employer. They need this to calculate your pre-accident average weekly earnings (PAWE). In an email dated XX/XX/20XX, the insurance company provided you with a Recovery Support Referral Notification. The Notification advised that you have been referred to complete rehabilitation. Payments for the sessions should be forwarded to the insurance company for them to cover the payments of the sessions. In an email dated XX/XX/20XX from the insurance company, you were advised that your claim for statutory benefits has been accepted for 52 weeks from the date of the incident. In an email dated XX/XX/20XX from the insurance company, you were advised that your PAWE was determined to be $X. On XX/XX/20XX, the insurance company sent you a payslip for the payment period XX/XX/20XX to XX/XX/20XX. The income benefits were the total payments from XX/XX/20XX until XX/XX/20XX. The total amount paid to you was $X. Deductions $X. On XX/XX/20XX, the insurance company sent you a payslip for the payment period XX/XX/20XX to XX/XX/20XX. The total amount paid to you was $X. Deductions $X. On XX/XX/20XX, the insurance company sent you a payslip for the payment period XX/XX/20XX to XX/XX/20XX. The income benefits were the total payments from XX/XX/20XX until XX/XX/20XX. The total amount paid to you was $X. Deductions $X. Total amount you received from the insurance company was $X. The purpose of the compensation payments was to provide an income replacement to compensate you for your loss of earnings as a result of your incapacity to work.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-20 | Income Tax Assessment Act 1997 section 11-15 | Income Tax Assessment Act 1997 section 51- 5 | Income Tax Assessment Act 1997 section 51-33

Reasons for decision: Summary: Division 6 of the ITAA 1997 provides that the assessable income of an Australian resident for taxation purposes, includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, unless it is exempt income. Periodic workers' compensation payments paid to an injured employee to compensate them for their loss of earnings due to their incapacity to work, are considered ordinary income and as such, will be assessable income under section 6-5 of the ITAA 1997, unless they are exempt income under section 6-20 of the ITAA 1997. An amount of ordinary income is exempt income if it is expressly exempted from income tax. Section 11-15 of the ITAA 1997 lists the provisions which make certain types of income exempt from income tax. One such provision is section 51-5 of the ITAA 1997 which, among other things, deals with various payments received by members and former members of the Army Reserve. It provides exemption for Army Reserve pay and allowances of a member of the Army Reserve (except for pay and allowances for continuous full-time service). Section 51-33 of the ITAA 1997 provides that a compensation payment for the loss of Reserve Defence Force pay and/or allowance is only exempt from tax if all of the following requirements are met: (1) (a) the payment is made under the Safety, Rehabilitation and Compensation Act 1988 in respect of an injury (as defined in that Act) you suffered; and (b) you suffered your injury while serving as a member of the Naval Reserve, Army Reserve or Air Force Reserve (but not while on continuous full-time service); and (c) your pay and/or allowances were payable for service of a kind described in paragraph (b). (2) (a) the compensation payment is made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that Act); and (b) you sustained your service injury or contracted your service disease, or your service injury or disease was aggravated or materially contributed to, while serving as a member of the Naval Reserve, Army Reserve or Air Force Reserve; and (c) your pay or allowance was payable for service of a kind described in paragraph (b). Accordingly, compensation payments for loss of Reserve Defence Force pay and/or allowance that do not satisfy the requirements of section 51-33 of the ITAA 1997 remain subject to income tax. The compensation payments made to you for your loss of Airforce Reserve income fail to satisfy the conditions set out in section 51-33 of the ITAA 1997 for the following reasons: • the payments to compensate you for your loss of Airforce Reserve income was not made under the Safety, Rehabilitation and Compensation Act 1988; • your compensable injury was not sustained whilst you were actually serving as a member in the Airforce Reserve. • the payments to compensate you for your loss of Airforce Reserve income was not made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that act). Accordingly, the compensation payments made to you for your loss of Airforce Reserve income are not exempt from income tax. Therefore, the weekly statutory benefit payments you received for your loss of Airforce Reserve income are assessable income under section 6-5 of the ITAA 1997.