Private ruling: Lump sum compensation payment
Published: November 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is any part of the lump sum compensation payment you received assessable as ordinary income or as a capital gain? | A1: No.

Relevant facts and circumstances: You suffered a work place injury. A State X worker's compensation claim was lodged and you had been in receipt of weekly workers' compensation payments and medical expenses, from your employer. You signed a memorandum of agreement to accept a lump sum payment. In accepting the compensation payment your claim is now finalised and you have surrendered your entitlement to any further compensation in relation to your injuries under the Act as well as forfeiting any chance to recover civil damages from the employer.

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 10-5 | Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)

Reasons for decision: Summary: Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 provides that the assessable income of a resident taxpayer includes ordinary and statutory income (for example, capital gains) derived directly and indirectly from all sources during the income year. In your case, you suffered an injury at your work place and as a result sustained a permanent partial impairment. You received a lump sum compensation payment as consideration for giving up all your rights under the Act. Taxation Determination TD 93/3 provides the Commissioner's view on the assessability of workers compensation lump sum payments. Paragraph 5 of TD 93/3 states that a lump sum payment received as redemption of all an injured worker's rights under a Compensation Act is of a capital nature and so is not assessable as ordinary income. It also states that such a payment is not assessable under the capital gains tax provisions. Accordingly, the lump sum compensation payment is not assessable as either ordinary or statutory income. Therefore, no part of the settlement amount is required to be included in your income tax return.