Private ruling: Lump sum payments paid pursuant to the Return to Work Act 2014 South Australia (RWA)
Date of advice: 16 January 2020
Published: March 2020
Ruling period: Year ending 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will the amount of or any portion thereof to be paid pursuant to section 33 RWA be included in your assessable income? | A1: No. | Q2: Will the amount of or any portion thereof to be paid pursuant to section 56 of the RWA be included in your assessable income? | A2: No. | Q3: Will the amount of or any portion thereof to be paid pursuant to section 58 of the RWA be included in your assessable income? | A3: No.

Relevant facts and circumstances: You were employed. You sustained compensable disabilities said to have arisen from your employment. You will receive a redemption offer pursuant to section 33 and paragraph 54(1)(a) of RWA. You made a claim for compensation pursuant to the RWA, which was accepted. In accordance with Part 2 Division 5 of the RWA you have been assessed as having a x% whole person impairment (WPI). As the injury resulted in you having a degree of permanent physical impairment, you were entitled to two lump sum payments pursuant to sections 56 and 58 of the RWA. Section 56 of the RWA provides an entitlement to a lump sum payment for loss of future earning capacity for a worker (other than a seriously injured worker) who has been assessed as suffering a degree of WPI (between 5% and 29%) as a result of their work injury, subject to certain exceptions. The lump sum is determined according to a formula set out in subsection 56(4) of the RWA. The calculation takes into account the prescribed sum that applies to the injured worker's degree of WPI, their age and the proportion of full-time work performed at the time of the injury. Section 58 of the RWA provides an entitlement to a lump sum payment for non-economic loss for a worker who has been assessed as suffering 5% or more WPI as a result of their work injury, subject to certain exceptions. Subsection 58(4) of the RWA states that the lump sum will be an amount that represents a portion of the prescribed sum calculated in accordance with the regulations. Non-economic loss is defined in the RWA as: · pain and suffering · loss of amenities of life · loss of expectation of life · disfigurement · any other loss or detriment of non-economic nature. You were offered a dissected lump sum in settlement of your entitlement pursuant to section 33 of the RWA. You were offered a dissected lump sum in settlement of your entitlement pursuant to section 56 of the RWA. You were offered a dissected lump sum in settlement of your entitlement pursuant to section 58 of the RWA. As part of the agreement you have to resign. You accepted the offer. The employer is a self-insured employer within the meaning of the RWA and you have provided a copy of a letter from their insurer detailing the claim, permanent impairment assessment offer and decision.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 Section 15-30 | Income Tax Assessment Act 1997 S ection 104-25 | Income Tax Assessment Act 1997 Section 118-37

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) refers to ordinary income and section 6-10 of the ITAA 1997 refers to statutory income (for example, capital gains). The ITAA 1997 does not provide specific guidance on the meaning of ordinary income. However, a substantial body of case law exists which identifies its likely characteristics. Amounts that are periodic, regular or recurrent and relied upon by the recipient for their regular expenditure are likely to be ordinary income, as are amounts that are the product of any employment of, or services rendered by, the recipient. Further, amounts which compensate for lost income or serve as a substitute for other income are themselves income according to ordinary concepts. Paragraph 21 of Taxation Determination TD 2016/18 Income tax: is a redemption payment received by a worker under the Return to Work Act 2014 (SA) assessable income of the worker, provides guidance on payments made under section 56 of the RWA and explains that lump sum payments made under section 56 do not have the character of ordinary income as they are based on a sum prescribed by statute which bears no relationship to the employee's current or former earnings. Section 58 of the RWA entitles a worker to compensation for non-economic loss by way of a lump sum. The amount received is calculated as a proportion of the prescribed sum for the degree of WPI caused by the work injury. It is a one-off lump sum payment baring none of the characteristics of ordinary income as it lacks any element of periodicity, recurrence or regularity, and nor is it paid to compensate for loss of income. The lump sum payment paid pursuant to section 33, 56 and 58 of the Return to Work Act 2014 (South Australia) (RWA) are capital in nature and will not be assessable as ordinary income as per section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). You have received two lump sum payments pursuant to sections 56 and 58 of the RWA as a result of being assessed as suffering a degree of permanent impairment (being whole person impairment) from a physical injury sustained at work. The receipt of a lump sum compensation amount may give rise to a capital gain (statutory income) under CGT event C2 (section 104-25 of the ITAA 1997) which relates to cancellation, surrender or similar endings. However, a capital gain or loss made upon the ending of a CGT asset acquired on or after 20 September 1985 is disregarded under subparagraph 118-37(1)(a)(i) of the ITAA 1997, if the CGT event is in relation to compensation or damages received for any wrong or injury you suffer in your occupation. The lump sum payments have been received as compensation and therefore any capital gain or capital loss arising from the Capital Gains Tax (CGT) event will be disregarded under subparagraph 118-37(1)(a)(i) of the ITAA 1997 and the payments will not be assessable as statutory income As the lump sum payments pursuant to sections 33, 56 and 58 of the RWA are not assessable as either ordinary or statutory income, you are not required to include the amounts in your assessable income.