Private ruling: Timing of your lump sum redemption payment
Published: September 2017
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Can you declare your lump sum redemption payment for a work place injury over two financial years? | A1: No.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You sustained compensable disabilities said to have arisen from your employment. You will receive a redemption offer pursuant to section 33 and paragraph 53 of the Return to Work Act 2014 (SA). You were required to resign from you employment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Return to Work Act 2014 (SA) Section 33 | Return to Work Act 2014 (SA) Section 53

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources whether in or out of Australia, during the income year. An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; 10 ATD 82). Compensation payments, which substitute income, have been held by the courts to be income under ordinary concepts ( Federal Commissioner of Taxation v. Inkster (1989) 24 FCR 53; 89 ATC 5142, (1989) 20 ATR 1516). The payment retains the characteristics of ordinary income even though paid as a compensation amount. Furthermore, where the compensation amount is considered to be income under ordinary concepts, it is assessable in the income year it is received for the purposes of section 6-5 of the ITAA 1997, even though the payment may relate to a past or future income period (Taxation ruling TR 98/1). In your case, you have received a lump sum redemption payment associated with weekly payments. Therefore, the redemption amount you will receive is ordinary income and is fully assessable under section 6-5 of the ITAA 1997 in the income year that you receive the payment.