Private ruling: Repayment of workers' compensation amounts
Date of advice: 27 February 2026
Published: 13 April 2026
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you exclude the amounts repaid to the insurer from your assessable income? | A1: You cannot exclude the amounts repaid to the insurer from your assessable income.

Relevant facts and circumstances: You were employed by your employer between 20XX and 20XX. During the course of your employment, you sustained work-related injuries, bringing several claims over a period of several years. As a result of your injuries, you became unable to perform your normal duties and ceased work. You took a redundancy. Following the injury, you received regular statutory workers compensation payments. You were assessed by a number of medical professionals who certified that you had a level of impairment of a certain percentage. You brought a claim for work injury damages against your employer, alleging negligence, breach of statutory duty and breach of contract. The insurer denied the claim, and you proceeded to mediation with your employer and the insurer. You participated in several mediation sessions before the insurer finally agreed to a lump sum settlement. A Deed of Release was entered into by you, the employer and the insurer. Orders were made by consent in the relevant state court. Orders made included a judgment for you with a specified lump sum amount. The lump sum was not apportioned between different heads of damage. The judgment amount was exclusive of past payments of weekly compensation paid to you by the insurer. The insurer received a credit for the weekly wage compensation payments that it had made to the date of settlement.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 59-30

Reasons for decision: Summary: You cannot exclude the amounts repaid to the insurer from your assessable income. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources whether in or out of Australia, during the income year. Compensation payments received as compensation for loss of wages are fully assessable as ordinary income. The essential character and nature of such payments are of an income substitute ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). Section 59-30 of the ITAA 1997 provides that certain amounts that were previously treated as assessable income and that must be repaid are not assessable income. However, subsection 59-30(3) of the ITAA 1997 states that this section does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation. In your case, you received a lump sum settlement from the insurer. Similar circumstances were found in Rayner v. FC of T 98 ATC 2310. In this case, the taxpayer was injured at his place of work and received workers' compensation payments from the Workers' Compensation Board of Queensland, totalling $18,327. The payments were included in his assessable income for the 1995 tax year. The taxpayer subsequently sued his employer for damages relating to his injuries and received an amount of $25,000 in settlement. Of that amount, $18,327 was refunded to the Board. The taxpayer then requested an amended assessment for a refund of tax. It was found that the subsequent repayment of the workers' compensation payments had no tax consequences and the periodic payments were rightly assessed when they were received. The taxpayer overlooked the fact that he really received $18,327 twice for his period of incapacity for work: the first when he received workers' compensation payments; the second when he received the damages. That is, the amount of damages calculated had been increased to take into account the fact that workers' compensation payments would have to be repaid out of the lump sum. He had to repay the Board out of the damages received as the workers' compensation legislation does not allow a taxpayer to keep two payments for incapacity for work for the same period in these circumstances. It was not true to say that the taxpayer had not had the benefit of the $18,327 which he received in the 1995 taxation year. He had the benefit of it and paid tax on the benefit when it was received. The taxpayer was denied his request to amend his 1995 assessment. No amendment of the assessment was warranted, legally or morally. A similar decision was made in Case W78 , 89 ATC 701. Mr G L McDonald, of the Administrative Appeals Tribunal stated at p 704: Workers' compensation payments stand in the place of salary earned and are not subject to recoupment. The amount refunded pursuant to the workers' compensation legislation is refunded because the statute requires the defendant in the action to make the payment. If the workers' compensation legislation did not require the repayment to be made, the damages awarded to the plaintiff/applicant would be adjusted to take account of the weekly or fortnightly workers' compensation payments made to the date of judgement. That being the case, no obligation would arise requiring the applicant/plaintiff to repay any workers' compensation payments which he had earlier received. Where a repayment of workers' compensation payments is required as a result of a taxpayer receiving a lump sum award of damages, the lump sum should have adequately compensated the taxpayer by including an equivalent amount as part of the damages awarded. Therefore, the taxpayer is not under-compensated by being required to make the repayment. Your case is similar to the above. Your worker's compensation payments were correctly assessed in the years they were received as the character of the payments was income. You were further compensated when you received your lump sum payment. As a result, you were required to repay the compensation payments previously received. In Fox v. Wood (1981) 148 CLR 438, the High Court held that in those cases where income previously received and taxed had to be repaid, the lump sum personal injury award includes an additional amount (the Fox v Wood amount) to compensate for the tax that had been paid. The repayment of your worker's compensation payments has placed you in the same financial position that you would have been had you only received the final compensation payment. | Detailed Reasoning - Application to your circumstances: The insurer was repaid the compensation payments you received prior to your final settlement. These payments were correctly characterised as assessable income at the time you received them and tax was withheld accordingly. The amounts to be repaid to the insurer were taken into consideration when calculating your final settlement amount. Subsection 59-30(3) of the ITAA 1997 will operate to prevent exclusion of the worker's compensation amounts from your assessable income. Therefore, as the amounts can't be excluded from your assessable income, you are not entitled to a refund of the tax withheld on those amounts.