Having regard to the case law, the facts referred to in the taxpayer’s ruling application and specifically the manner in which the WCC determined the amount to be paid in compensation, the Tribunal concluded that the compensation payment was assessable as ordinary income.
The Tribunal considered that the purpose of the compensation, in the case of gratuitous domestic help, was to ensure that the care giver was directly provided with a sufficient payment to cover her lost income. It said this was achieved through the mechanism of making a payment directly to the care giver only in circumstances where she had lost income or foregone employment as a result of providing that assistance.
The Tribunal did not accept the contention that the compensation payment was made to compensate the wife for a loss of earning capacity. It said the facts indicated she did not suffer a loss of earning capacity. She did not suffer an injury that prevented her from being able to work. Rather, she elected to voluntarily resign from her full-time employment so as to enable her to provide domestic assistance to her husband. The Tribunal said on no basis could this be described as a loss of income earning capacity – rather, it was a loss of income.
While the payment as a lump sum could be suggestive of a capital payment, the Tribunal said that fact alone did not mandate a conclusion that it was of a capital nature. It said it will very much depend on all the relevant circumstances. Furthermore, the Tribunal said it was clear from the case law that a lump sum payment representing lost earnings is assessable income. Accordingly, the Commissioner’s decision was affirmed.
The taxability or otherwise of workers compensation payments depends very much on the facts of each case, and generally derives from the relevant scheme. Care should always be taken in how taxpayers treat such payments for tax purposes. It will often be prudent to seek professional advice.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
