The Australian Taxation Office (ATO) has confirmed income tax will be payable on redemption payments under the South Australian workers' compensation scheme.
The ATO released a draft taxation determination for comment on whether a redemption payment received by a worker under the Return to Work Act 2014 (SA) should be assessable income. The draft ruling proposed in favour of this position, with the ATO now confirming by formal ruling that redemptions (under the Act) will be classed as assessable income.
As a Commonwealth entity, the ATO's formal ruling may impact redemption payments under Western Australian compensation legislation. This will likely lead to workers seeking gross amounts as part of settlements, and employers and insurers entering into settlements based on these amounts. Reserves of settlement amounts will now have to be increasingly considered, especially if there is no common law component.
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