Private ruling: Workers compensation - lumpsum payments
Date of advice: 29 July 2025
Published: 29 September 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the lump sum entitlements you will receive pursuant to section 54, 56 and section 58 of the Return to Work Act 2014 South Australia (RWA) included in your assessable income? | A1: No

Relevant facts and circumstances: On Date one, you sustained work injuries. Following this, you made a workers compensation claim. Your workers compensation claim was accepted for income support and reimbursement of work expenses as a not seriously injured worker. Your entitlement to income support ended several years ago. Your entitlement to payment of medical expenses ended the following year. You applied for lump sum compensation and by agreement, the workers compensation insurer has agreed, in principle, to resolve your entitlements as a not seriously injured worker. You have provided a list of entitlements you will receive. The entitlements you will receive are listed below: You expect to receive your entitlements in a few months' time. Assumption You will receive your entitlements within the ruling period.

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 104-25 | Income Tax Assessment Act 1997 section 118-37

Reasons for decision: Summary: The lump sum entitlements you will receive are not included in your assessable income. | Detailed Reasoning - Detailed reasoning: The assessable income of an Australian resident taxpayer includes ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and statutory income under section 6-10 of the ITAA 1997 such as capital gains. Ordinary Income There is no legislative definition of ordinary income. However, a substantial body of case law has identified several characteristics that indicate when an amount is likely to be income. Amounts that are periodic, regular or recurrent and relied upon are likely to be ordinary income, as are amounts that are the product of any employment of, or services rendered. Amounts which compensate for loss of income or serve as a substitute for other income are also income according to ordinary concepts. Section 54 of the Return to Work Act 2014 (SA) (RWA) provides an entitlement to a capital payment made as a result of an agreement with the Return to Work Corporation of South Australia ( or a self-insurer delegated the powers and directions of the same) to redeem the employer's liability to compensate the employee for medical services. Section 56 of the RWA provides an entitlement to a lump sum payment to compensate for economic loss as a result of permanent impairment. Payments made pursuant to section 56 are to compensate for the loss of earning capacity. 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 whole person impairment as a result of their work injury, subject to certain exceptions. This is a one-off lump sum payment bearing none of the characteristics of ordinary income as it lacks any element of periodicity, recurrence or regularity. The payment is not made to compensate for loss of income. It is paid to compensate for non-economic loss such as pain and suffering. 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. 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? states that a payment made pursuant to statutory compensation provisions dealing specifically with loss of future earning capacity does not have the character of ordinary income. This is because such a payment is based on a sum prescribed by statute which bears no relationship to the employee's current or former earnings. As with payments made under section 56 of the RWA, payments made under section 58 have no relationship to the employee's current or former earnings. Payments made under section 54 of the RWA are paid to compensate for the cost of medical services required as a result of a workplace injury. They have none of the characteristics of income and the payment is made without reference to the employee's current or former earnings. Statutory Income 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 related to cancellation, surrender or similar endings. However, a capital gains 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. Application to your circumstances In your case, you will receive lump sum payments pursuant to sections 54,56 and section 58 of theRWA. These payments will be received as a result of being assessed as suffering a degree of permanent impairment from a physical injury sustained at work and to compensate you for medical expenses. Therefore, the lump sum payments are capital in nature and will not be assessed as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 . The lump sum payments you will receive are compensation for a 'wrong or injury you have suffered in your occupation', being the loss of body functionality in respect of your workplace injury. Therefore, any capital gain or capital loss arising from the CGT event will be disregarded under subparagraph 118-37(1)(a)(i) of the ITAA 1997 and the payment will not be assessable as statutory income. As the lump sum payments pursuant to section 54, 56 and section 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.