Private ruling: PAYG Withholding
Date of advice: 28 June 2018
Published: September 2018
Ruling period: Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is there an obligation on the entity under sections 12-35 or 112-120 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to withhold from a lump sum payment? | A1: No.

Relevant facts and circumstances: A claim was lodged, under the State’s workers compensation scheme by an employee who claimed to have suffered an injury in the course of their employment. The entity determined that the claim did not meet the requirements to be accepted, and the claim was denied. The employee lodged an application to resolve the dispute with the Workers Compensation Commission (WCC). AWCC Arbitrator facilitated a teleconference between the parties. The parties came to an agreed resolution of the issues in dispute. A certificate of determination by consent order was issued by the WCC. The employee was awarded a payment for medical expenses.

Relevant legislative provisions: Schedule 1 to the Taxation Administration Act 1953 Section 12-1(1A) | Schedule 1 to the Taxation Administration Act 1953 Section 12-120 | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Paragraph 118-37(1)(a)

Reasons for decision: Summary: Part 2-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) relates to the Pay As You Go (PAYG) withholding system. Payments and other transactions subject to PAYG withholding are called withholding payments. A summary of these payments may be found in subsection 10-5(1) of Schedule 1 to the TAA 1953. The list includes the following payments: • a payment of salary or wages to an employee or officeholder • a compensation, sickness or accident payment. Division 12 of Schedule 1 to the TAA 1953 relates to payments from which amounts must be withheld. Based on your circumstances, section 12-35 of Schedule 1 to the TAA 1953 and section 12-120 of Schedule 1 to the TAA 1953 are the relevant sections that need to be considered. Section 12-35 of Schedule 1 to the TAA 1953 provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). Section 12-120 of Schedule 1 to the TAA 1953 provides that an entity that makes a payment of compensation, or sickness or accident pay to an individual must withhold an amount if the payment: • is made because of that or another individual’s incapacity for work; and • is calculated at a periodical rate; and • is not a payment made under an insurance policy to the policy owner. In this case, the lump sum has been made at the direction of the WCC under a certificate of determination – consent orders for medical expenses, which represents a private expense. The lump sum payment was not calculated at a periodical rate and is not a compensation payment to reflect the fact that the amount paid was for lost salary, wages or other earnings that would normally be subject to PAYG withholding. Therefore, neither section 12-35 or 12-120 of Schedule 1 of the TAA 1953 will apply. Accordingly, regardless of whether the payment is assessable to the recipient, there is no obligation to withhold tax on the lump sum payment.