Keys and Commissioner of Taxation (Taxation)

[2019] AATA 238

Keys and Commissioner of Taxation (Taxation) [2019] AATA 238 (27 February 2019)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:           2017/7519, 2017/7520 and 2017/7521

Re:Kenneth Keys

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Boyle

Date:27 February 2019  

Place:Perth

The Tribunal affirms the respondent’s decision dated 4 October 2017.

...........[sgd].............................................................

Deputy President Boyle

CATCHWORDS

TAXATION – income tax assessment objection – whether payments to the applicant are assessable income for the years ended 30 June 2012, 2013 and 2014 – whether payments made to the applicant under workers’ compensation law are loans – recovery of damages paid to reimburse workers’ compensation payments made not repayment of a loan – Income Tax Assessment Act 1997 (Cth) – s 59-30(3) – whether the lump sum damages awarded to the applicant represent compensation or damages for a wrong or an injury the applicant suffered in his occupation – decision under review is affirmed

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) – s 29

Income Tax Assessment Act 1997 (Cth) – ss 6-5, 59-30
Taxation Laws Amendment Act (No.2) 2003 (Cth)
Taxation Laws Amendment Act (No.4) 2003 (Cth) – Sch 3 – Items 73 and 89
Taxation Administration Act 1953 (Cth) – s 14ZZC
Workers’ Compensation and Injury Management Act 1981 (WA) – ss 18, 21, 92, 174, 174AC, Sch 1 Cl 7(1)

CASES

Commissioner of Taxation v Smith (1981) 147 CLR 578

Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540
Federal Commissioner of Taxation v Inkster (1989) 24 FCR 53
Fox v Wood (1981) 148 CLR 438
MVIT v Brambles Holdings Ltd & Ors (1985) WAR 50, 53
Rayner and Commissioner of Taxation [1998] AATA 757
Tinkler v Federal Commissioner of Taxation (1979) 40 FLR 116

SECONDARY MATERIALS

Taxation Laws Amendment Bill (No. 2) 2003 Explanatory Statement

REASONS FOR DECISION

Deputy President Boyle

27 February 2019

THE APPLICATION

1. The applicant seeks review of the respondent’s decision dated 4 October 2017 (T2) (the objection decision) disallowing the applicant’s objections to the respondent’s income tax assessments for the years ended 30 June 2012, 2013 and 2014.

   BACKGROUND

2. The applicant was injured on 18 July 2011 as a result of a motor vehicle accident that occurred in the course of his employment with Premier Pet Pty Ltd (Premier) (T26). His main duties, as WA Territory manager, were selling and merchandising to the pet trade (T26).

3. His vehicle was hit from behind by another vehicle causing him to suffer injury to his neck and back from the resulting whiplash.

4. A claim under the Workers’ Compensation and Injury Management Act 1981 (WA) (WCA) dated 19 September 2011 was made by the applicant to Premier (T25).

5. Under the WCA, when an incapacity for work results from an injury arising out of or in the course of a worker’s employment (WCA s 5(1) – definition of “injury”), the incapacitated worker is entitled to be paid by his employer “a weekly payment during the incapacity equal to the weekly earnings of the worker calculated and varied in accordance with”
   Sch 1 of the WCA (s 18, s 52 and Sch 1 Cl 7(1) of the WCA).

6. Premier accepted the claim and on 13 April 2012 began making weekly payments of $2,218.46 gross to the applicant. From each of those payments it withheld $448.00 as Pay as You Go (PAYG) tax instalments, which it remitted to the Australian Tax Office (ATO) (T30).

7. Premier continued to make weekly payments in that manner until 3 August 2012 (T30 at 85). It then failed to make the weekly payment to the applicant that was due on

   
   

   10 August 2012 (T30 at 85) but re-commenced on 17 August 2012 making weekly payments of $1,109.23 gross, from which it withheld and remitted amounts of $224.00. Premier continued to make weekly payments at that rate until 17 May 2013.

8. On 11 January 2013 Premier paid the applicant an amount of $12,201.53 (gross) from which it withheld and remitted $4,658.00. The amount of $12,201.53 is 11 times $1,109.23. The respondent submits, and the Tribunal accepts, that this amount represents, in addition to the weekly payment for the week ended 11 January 2013, arrears of previous weekly payments.

9. Premier was not insured in respect of its liability to the applicant under the WCA.

10. Because Premier failed to make weekly payments after 17 May 2013 the applicant made an application to WorkCover Western Australia Authority (WorkCover WA) for conciliation of his dispute with that company (T31). On 18 July 2013 a conciliation conference was held at which the employer (at this stage it appears that the employer was a new entity “Aquatopia Australia Pty Ltd”) was directed to forthwith recommence weekly payments of compensation for total incapacity at the rate of $1,109.23 per week to the applicant from 17 May 2013 for a period of 12 weeks (T31).

11. On 23 October 2013 WorkCover WA Conciliation Service made the following “finalising orders” by consent (T33):

    1.Liability for the applicant (worker’s) injury sustained on 18 July 2011 is admitted by the Respondent (employer).

    2.The employer consents to an award being made against it in favour of the worker in the sum of $1109.23 per week from 10 August 2013.

    3.It is hereby awarded by consent that the employer do pay to the worker the sum of $1109.23 per week from 10 August 2013 and continuing.

    4.The employer consents to the General Account of WorkCover WA being joined as a party to the application and make compensation payments to the worker 30 days from the date of this order if the employer fails to make the weekly payments. This is on the understanding by the employer that WorkCover WA will seek to recover all monies paid from the General Account in respect to this claim.

    5.Both parties consent to WorkCover WA producing and relying upon this Memorandum in any Court of competent jurisdiction in which it is necessary to commence proceedings for the recovery of monies paid as a result of clause 3.

12. On 2 September 2013 WorkCover WA paid the applicant $13,310.76 gross, which represented arrears of weekly payments of $1,109.23 from 17 May 2013 to

    
    

    9 August 2013.  It withheld $2,580.00 in PAYG instalments from that amount that it remitted to the ATO (T37 at 104).

13. On 28 November 2013 WorkCover WA paid the applicant $18,856.91 gross, which represented arrears of weekly payments of $1,109.23 from 10 August 2013 to

    
    

    5 December 2013 (T34 at 94).  It withheld $3,655.00 in PAYG instalments from that amount that it remitted to the ATO (T37 at 103).

14. On 16 December 2013 WorkCover WA began paying the applicant $2,218.46 per fortnight and continued to make those fortnightly payments to the applicant until September 2015 (T34 at 95-96).  It withheld $430.00 in PAYG instalments from each of those payments that it remitted to the ATO (T37 at 103).

15. On 9 August 2012 the applicant lodged an income tax return for the year ended

    
    

    30 June 2012 (T4). That return disclosed gross income of $38,390 received from Premier and income tax deductions totalling $1,615 resulting in a disclosed taxable income of $35,235 (T4).

16. On 20 August 2012 the respondent issued a notice of assessment to the applicant for the year ended 30 June 2012 in accordance with that income tax return (T5).

17. On 21 August 2013 the applicant lodged an income tax return for the year ended

    
    

    30 June 2013. That return disclosed gross income of $56,570 received from Premier and income tax deductions totalling $216 resulting in a disclosed taxable income of $56,359 (T6 at 19).

18. On 29 August 2013 the respondent issued a notice of assessment to the applicant for the year ended 30 June 2013 in accordance with that income tax return (T8).

19. On 30 July 2014 the applicant lodged an income tax return for the year ended

    
    

    30 June 2014 (T9). That return disclosed gross income of $52,759 received from WorkCover WA, a rental property loss of $8,100 and other income tax deductions of $256 resulting in a disclosed taxable income of $44,493 (T9).

20. On 7 August 2014 the respondent issued a notice of assessment to the applicant for the year ended 30 June 2014 in accordance with that income tax return (T10).

21. On 20 August 2014 WorkCover WA issued a PAYG payment summary to the applicant in respect of the year ended 30 June 2014 that disclosed gross payments for the year ended 30 June 2014 of $65,445 and tax withheld of $12,685 (T11).

22. On 9 June 2014 the applicant commenced an action in the District Court of Western Australia against the driver of the vehicle in the accident resulting in the injury (District Court reference No.1853 of 2014). The relevant writ contained the following indorsement of claim (T2 at 8):

    [t]he plaintiff claims [from the Defendant] damages for personal injuries arising out of a motor vehicle accident which occurred on 18 July 2011 and that you were claiming damages, interest and costs.

23. On 9 December 2015 judgment in that action was awarded to the applicant by the District Court, by consent, for $300,000 plus costs fixed at $29,400.70 (T12).

24. Section 92 of the WCA provides:

    Where in respect of an injury an action is brought by a worker for damages independently of this Act against his employer or against some other person (referred to in this section as the defendant) or against both of them -

    (a)…

    (b)if the action proceeds to judgment, including the acceptance of an offer to consent to judgment, against the employer only or against the employer and the defendant, there shall be deducted from the amount of the judgment and be paid to the employer a sum representing the amount ... actually recoverable by the worker by way of weekly or lump sum compensation, medical and other expenses paid pursuant to this Act, …

    (c)... the payments and expenses referred to in paragraph (b) shall be a first charge on the judgment ...

25. Because of the above provisions, amounts of $83,192.25 and $134,777.75 were deducted from the above judgment sum and paid to Premier and the General Fund of WorkCover WA (pursuant to ss 174 and 174AC of the WCA) respectively (T13).

26. On 19 May 2017 the applicant lodged objections to his above income tax assessments for the years ended 30 June 2012, 30 June 2013 and 30 June 2014 (T17, T18 and T19). The grounds of these objections were that the relevant amounts received from Premier Pet  and WorkCover WA:

    (a)should have been a loan to sustain (the applicant) financially, not a wage; and

    (b)the nature of the income (the applicant) received changed from taxable to non­ taxable, because the applicant, in essence received a lump sum compensation as a result of winning a court case (T17, T18 and T19).

27. On 4 October 2017 the respondent disallowed those objections in full (T22 at 67).

28. The applicant received the objection decision on 25 October 2017 and lodged the application for review in the Tribunal on 16 December 2017 (T1). Pursuant to s 14ZZC of the Taxation Administration Act 1953 (Cth) (the TAA Act), as that section amends s 29 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act), the applicant had 60 days after the service of the objection decision to lodge the application for review. The Tribunal finds that it has jurisdiction to review the objection decision.

    THE ISSUES

29. First issue: Whether payments totalling:

    (a)

    $83,192.25 made to the applicant during the years ended 30 June 2012 and

    
    

    30 June 2013 from his former employer, Premier, following a motor vehicle accident on 18 July 2011, in which the applicant was injured in the course of his employment and unable to work; and

    (b)$65,445 made to the applicant during the year ended 30 June 2014 by the General Fund of WorkCover WA in relation to the applicant’s continued incapacity to work resulting from the above accident;

    are assessable income of the applicant in those years or alternatively:

    (i)merely loans made to the applicant that are not assessable income; and/or

    (ii)part of an undissected lump sum award of damages that is not assessable income.

    Second issue: Whether the lump sum damages awarded to the applicant on
    9 December 2015 in respect of District Court of Western Australia action no.1853 of 2014 represent “compensation or damages for a wrong or injury … [the applicant] suffered in … [his] occupation” for the purposes of s 59-30(3) of Income Tax Assessment Act 1997 (Cth) (ITAA 97).

    LEGISLATIVE FRAMEWORK

30. Section 18 of the WCA provides:

    If an injury of a worker occurs, the employer shall, subject to this Act, be liable to pay compensation in accordance with Schedule 1.

31. Clause 7(1) of Sch 1 to the WCA provides:

    7. Total or partial incapacity

    (1)Subject to section 56 and subclause (3) when total incapacity for work results from the injury a weekly payment during the incapacity equal to the weekly earnings of the worker calculated and varied in accordance with this Schedule.

32. Section 21 of the WCA provides that:

    …an employer is liable to pay compensation under this Act from the date of incapacity resulting from the injury...

33. Section 6-5 of the ITAA 97 provides:

    Income according to ordinary concepts (ordinary income)

    (1)Your assessable income includes income according to ordinary concepts, which is called ordinary income.

    Note: Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.

    (2)If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

    (3)If you are a foreign resident, your assessable income includes:

    (a)the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and

    (b)other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source.

    (4)In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

34. Section 59-30 of the ITAA 97 provides:

    Amounts you must repay

    (1)An amount you receive is not assessable income and is not *exempt income for an income year if:

    (a)you must repay it; and

    (b)you repay it in a later income year; and

    (c)you cannot deduct the repayment for any income year.

    (2)It does not matter if:

    (a)you received the amount as part of a larger amount; or

    (b)the obligation to repay existed when you received the amount or it came into existence later.

    (3)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.

    CONTENTIONS

    The applicant’s contention

35. Paragraphs 4 and 5 of the applicant’s amended statement of issues, facts and contentions (SFIC) are as follows:

    4.On settlement of my claim RiskCover/Premier Pet were repaid the full amount of payments including the tax instalments paid to the ATO. I therefore had in effect no income over that period & I had paid tax on the $217,000 twice on a Compensation payout which was non taxable.

    5.My claim against the ATO is that the repayments were a loan to the employer which the employer was to repay WorkCover WA in full.  There is no tax payable on Motor  Vehicle Accident payouts.  I therefore requested the instalments made by RiskCover/Premier Pet should be repaid to me, less any refund I received from tax returned [sic] lodged in the years prior to settlement of my claim, plus compound interest from the date of the first payment.

36. The applicant further submits at paragraphs 25 and 26 of his amended SFIC as follows:

    25.The amounts that were paid to RiskCover (ICWA) & Premier Pet of $134,777.75 & $84,510.65 respectively, were authorised by the ICWA and they overpaid them by a sum of $34,653 in tax & $182,347 my settlement amount.  My contention is that both RiskCover & Premier Pet need to repay that amount to me & the ATO has to refund me the instalments paid by the two parties.  Regardless, Interest as set by the tribunal should be paid from the 9th December 2015.

    26.I also ask has the ATO been paid $34,653 by both Aquatopia and the General account in the lead up to settlement & then paid a further $34,653 out of my settlement amount because both were paid a gross amount by the ICWA.

    The respondent’s contention

37. The thrust of the respondent’s contention in the Respondent’s amended SFIC (paras. 34, 38-40) is as follows:

    (a)the amount of the weekly payments received by the applicant from Premier and WorkCover WA were determined by reference to what his weekly salary or wage would have been but for his injury;

    (b)those payments were made in circumstances in which they were a substitute for the salary or wage the applicant would have earned had he not been injured. They were also paid periodically and on a regular basis over an extended period of time. For these reasons they represent income of the applicant according to ordinary concepts and were thus assessable income of the applicant pursuant to s 6-5 of the ITAA 97 (Federal Commissioner of Taxation v Inkster (1989) 24 FCR 53 (Inkster); Tinkler v Federal Commissioner of Taxation (1979) 40 FLR 116; Commissioner of Taxation v Smith (1981) 147 CLR 578; Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540);

    (c)even if the weekly payments can be characterised under the WCA as compensation for loss of the applicant’s “capacity to work” rather than for the loss of the salary or wages he was unable to earn because of the injury, that circumstance alone is not sufficient to characterise the weekly payments as capital rather than income. Because there was a close relationship between the amount of the payments and the actual salary or wages that the applicant lost, they were paid on a regular periodic basis over a significant period of time and were relied on by the applicant to meet his regular ordinary living expenses, the weekly payments are properly regarded as income. The respondent cites the judgment of Lee J (Gummow agreeing) in Inkster at [53]-[55]; and

    (d)the obligation to repay Premier and WorkCover WA only arose if a relevant award of damages relating to the same injury, whether in the applicant’s common law District Court action or otherwise, was made. Unless and until that occurred no such obligation existed. Accordingly, it is not correct to characterise the weekly payments as loans.

38. The respondent refers to the Tribunal’s decision in Rayner and Commissioner of Taxation [1998] AATA 757 (Rayner). The circumstances in that case were similar to the present case. The taxpayer in that case received weekly workers’ compensation payments from the insurer totalling $18,327 that were included in his assessable income in the year they were received. PAYG tax deductions were withheld from those payments. The taxpayer subsequently sued his employer for common law damages relating to his injuries and the claim was settled for $25,000 nett of the refund of the $18,327 to the insurer.

39. Senior Member Muller in Rayner held (at [3]) that “[t]he $18,327 received by the taxpayer as fortnightly workers’ compensation payments during the … [relevant] tax year, stood in the place of wages earned, had the characteristics of income, were taxable when received and were correctly assessed at the time.” Senior Member Muller also held that:

    4.Subsequent repayment of the workers’ compensation payments has no tax consequences for the following reasons:

    (i)The original income character of the payments is not changed by the subsequent repayment.

    (ii)Tax is calculated on a year to year basis. The payments were income during the 1994/95 tax year.

    (iii)The repayment results from a legislative obligation.

    (iv)The repayment itself is of a capital nature and not incidental to, nor incurred in relation to the gaining of income.

1. The taxpayer in Rayner appears to have run a similar argument to the applicant in the present case. He argued that in repaying the workers’ compensation payments to the insurer in October 1996, he, in effect, did not receive the payments in 1994/95 (the tax year in which the income had been included). He argued, therefore, that his 1994/95 assessment should be amended, by subtracting $18,327 from his income. That argument was rejected (at [5] in Rayner) as follows:

   … This submission, by the taxpayer overlooks the fact that he really received $18,327 twice for his period of incapacity for work. The first time occurred in 1994/95, when he received workers’ compensation payments. The second time occurred in October 1996, when he received the equivalent of his lost wages as part of the settlement for his damages from the defendant in the civil suit. The Workers’ Compensation legislation does not allow him to keep two payments for incapacity for work for the same period in these circumstances. He had to repay to the Board the amount of $18,327, out of the damages he received in October 1996. Had he not received workers’ compensation in 1994/95, he could have kept whatever he was awarded by way of damages, in October 1996 for loss of wages incurred in 1994/95. In any event, it is not true to say, that in the end the taxpayer has not had the benefit of the $18,327 which he received in 1994/95. He had the benefit in 1994/95. He paid tax on the benefit when it was received. No amendment of the 1994/95 assessment is warranted, legally or morally

2. The respondent’s contentions are correct. The argument that the applicant runs is, in effect, the argument that was rightly rejected in Rayner. Like the taxpayer in Rayner, the applicant’s lump sum award received on 9 December 2015 also included the equivalent of his lost salary or wages. The applicant’s damages award must be taken to have been calculated on the basis that his employer and WorkCover WA would be repaid the (gross) amount of the weekly payments they paid the applicant. The general law of damages requires that the gross (i.e. income tax inclusive) amount of previous weekly workers’ compensation payments must be taken into account in assessing damages awarded for personal injury (Fox v Wood (1981) 148 CLR 438).

3. The respondent submitted (amended SFIC at paras. 46-47) that:

   46.Where, as here, there is a specific statutory provision [s 92(1)(b) of WCA] requiring the worker, on receipt of an award of damages in respect of the same injury, to repay the employer the amount of any weekly payments previously made, the assessment of the award of damages by the court is made without deducting any amount in respect of those earlier payments [MVIT v Brambles Holdings Ltd & Ors (1985) WAR 50, 53]. As stated above, in such a case the court will also assess the damages award on the basis that the plaintiff worker will have to repay the full “gross” or tax inclusive amount of the workers compensation payments [Fox v Wood].

   47.Although the entirety of what the applicant became entitled to from the settlement of his District Court action might have been capital and not assessable income if he had not previously received weekly payments under the WCA in respect of the same injury, that circumstance does not retrospectively change the character of those weekly payments from income to capital.

4. The respondent’s submission is correct. Section 59-30(3) of ITAA 97 applies to the applicant’s case. The applicant received payments, firstly from his employer and then from his workers’ compensation insurer which represented his normal weekly earnings and from which, as would be the case if the applicant had been working and receiving his normal wage, his PAYG income tax liability was deducted and remitted to the ATO. The fact that subsequently a payment was made by the motor vehicle compulsory third party insurer which, in part, was to reimburse lost wages, which was payable by operation of law to the parties that had actually made those payments (i.e. the employer and the insurer), did not change the character of the lump sum payment as “damages for … injury … [the Applicant] suffered in … [the applicant’s] occupation”.

5. The applicant’s case also proceeds on the incorrect proposition that he will end up paying tax twice (para. 4 of applicant’s amended SFIC – see [35] above).  Not only is that simply wrong, he has and will only pay tax once, but the relief that he proposes in paragraph 25 of his amended SFIC (see [36] above) that both “RiskCover & Premier Pet need to repay that amount to me, or the ATO has to refund me the instalments paid by the two parties” would result in the applicant not paying any tax. The applicant’s misunderstanding and the driver behind this application is demonstrated by the following exchange that took place at the hearing (transcript at 7-8):

   DEPUTY PRESIDENT:  Is really the issue as simple as the fact that when you were receiving your weekly – regular payments, fortnightly or weekly or however frequent it was, you were receiving your pre-injury salary and the tax was being deducted and paid as it would normally have been paid had you stayed at work, effectively.

   MR KEYS:  Yes.

   DEPUTY PRESIDENT:  And that then when the lump sum payment came along later, which is the damages payable under the motor vehicle insurance or payable as a result of the negligent action of the driver, would include lost income or income damages which you –

   MR KEYS:  Pain and suffering.

   DEPUTY PRESIDENT:  Well, but also – normally it will be lost income. The fact that you’ve been reimbursed under insurance does not lessen the damage.  So as part of the amount that would have been payable by the negligent driver would be payment of your lost wages.  Now, the fact that those moneys have been paid by an insurer to you means that under their subrogated right, or the way the law operates is if you receive that money you have to reimburse the insurer that has paid you that money.  So isn’t that what effectively happened?

   MR KEYS:  Yes, but I was not only – I repaid the tax that I had already paid, so they took a gross figure.

   DEPUTY PRESIDENT:  Yes, the – sorry, the insurer and the employer did.

   MR KEYS:  Yes.

   DEPUTY PRESIDENT:  And that money was passed on to those people, to the insurer and the employer?

   MR KEYS:  Yes, the 217 [thousand dollars], which included the tax component, which I had already paid in tax anyway.

   …

   MR KEYS:  Well, my argument is that a payout for a motor vehicle accident is tax free.

   …

   MR KEYS:  When the payment was agreed to, it wasn’t broken up into a certain amount for loss of income, a certain amount for pain and suffering, and a certain amount for medical expenses, et cetera. 

6. The applicant overlooks that the weekly payments that he received from his employer and then the workers’ compensation insurer represented his weekly salary, a salary that had he not been injured he would have received and paid tax on, or in the case of a PAYG taxpayer, had the income tax liability deducted and remitted to the ATO. The workers’ compensation payments made, based on the income that he would have received but for being injured, were properly treated as taxable income upon which tax was payable and was paid.

7. The applicant’s argument that he “repaid the tax that I had already paid” because the $217,000 deducted from the payout that he received in settlement of his District Court action included the tax that had been paid is wrong. The fact that the amount deducted from the payout made to him included tax previously paid in the relevant financial years does not mean that the applicant pays tax twice. He only pays tax once, namely when the tax was remitted under the PAYG scheme directly to the ATO in the relevant tax years. Those payments quite correctly reflected the applicant’s income tax liability on the weekly payments that he was receiving by way of compensation calculated on his normal weekly earnings. If the applicant were now to receive the tax component of the $217,000 previously paid, then the nett position would be that he has paid no tax at all on that income. The tax component was, as is required by the legislation, paid to the parties that paid the compensation, including the income tax component, namely the employer and the workers’ compensation insurer.

8. The applicant’s argument that because an amount has now been paid in settlement of his claims for (amongst other things, loss of income) that this somehow changes the character of the tax payments made in the relevant financial years is also fallacious. Tax was properly payable on the compensation payments representing his weekly earnings. The fact that there has been a subsequent payment of a lump sum in settlement of the applicant’s damages claim does not change the correct characterisation of those periodic compensation payments as taxable income.

9. The applicant’s argument that the payments should be treated as loans is difficult to follow but, in any event, is misconceived. At paragraph 5 of his amended SFIC the applicant argues that:

   My claim against the ATO is that the repayments were a loan to the employer which the employer was to repay WorkCover WA in full.  There is no tax payable on Motor Vehicle Accident payouts.

10. It is not clear to what “repayments” the applicant is referring or what amount the applicant is asserting was a loan to the employer which had to be repaid to WorkCover WA. None of the relevant liabilities or payments could be considered to be a loan. If what the applicant is arguing is that the periodic compensation payments that he received and the tax paid by way of PAYG deductions in the relevant financial years were loans that had to be, and were actually repaid through the payout to the employer and the workers’ compensation insurer, then the Tribunal finds no basis on which those payments should be so characterised. They were not made on that basis and have never been treated as such.

11. In any event that argument must fail because s 59-30(3) of the ITAA 97 specifically excludes repayments made out of lump sum compensation payments for a wrong or injury from being treated as not assessable income under ss 59-30(1) or (2) of the ITAA 97.

12. Section 59-30 was added to ITAA 97 by Taxation Laws Amendment Act (No.4) 2003 (Cth) (no.66 of 2003) (Item 89 of Sch 3). That amending Act also repealed the predecessor to

    
    

    s 59-30, former s 22-5 of ITAA 97 (Item 73 of Sch 3 of the Taxation Laws Amendment Act (No.4) 2003 (Cth) (no.66 of 2003)).

13. Former subsections 22-5(1) and 22-5(2) were worded identically to subsections 59-30(1) and (2) of the ITAA 97 respectively. Former s 22-5(3) was also similarly worded to s 59-30(3) of the ITAA 97.

14. Former s 22-5 was added to ITAA 97 by Taxation Laws Amendment Act (No.2) 2003 (no.65 of 2003). According to the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 2) 2003 (paragraph 3.11):

    The provision also will not apply where a taxpayer has received instalments of money that have to be repaid upon receipt of a lump sum for compensation or damages for a wrong or injury suffered in the taxpayer’s occupation. This would occur, for example, where a taxpayer had received instalments of worker’s compensation or sickness allowance and later received a lump sum in respect of these payments necessitating the repayment of the instalments. [Schedule 3, item 4, subsection 22-5(3)].

15. The example given in the Explanatory Memorandum above of the subsection applying in relation to the repayment of instalments of workers’ compensation from a lump sum is consistent with s 59-30(3) excluding cases like the applicant’s (i.e. where assessable weekly payments of workers’ compensation are repaid from a lump sum damages award) from the concession otherwise provided by ss 59-30(1) and (2) of the ITAA 97.

16. As the lump sum damages award includes compensation for the income tax liability attached to the earlier weekly workers’ compensation payments, there is no need, from a fairness perspective, to allow a taxpayer to obtain a refund of that tax by obtaining an amended assessment that retrospectively treats those weekly payments as not assessable income.

17. For the reasons set out above the Tribunal finds that there is no legal bases for the applicant’s arguments raised in the applicant’s objections that:

    (a)the compensation payments made by the employer and the insurer should have been treated as  loans to sustain (the applicant) financially, not a wage; and

    (b)the nature of the income that the applicant received changed from taxable to non­taxable, because the applicant, in essence received a lump sum compensation as a result of winning a court case.

    CONCLUSION

18. In relation to the issues identified in [29] for resolution by the Tribunal, the Tribunal finds:

    First issue

    (a)

    payment of $83,192.25 made to the applicant during the years ended

    
    

    30 June 2012 and 30 June 2013 from his former employer, Premier, following a motor vehicle accident on 18 July 2011, in which the applicant was injured in the course of his employment and unable to work; and

    (b)payment of $65,445 made to the applicant during the year ended 30 June 2014 by the General Fund of WorkCover WA Authority in relation to the applicant’s continued incapacity to work resulting from the above accident;

    are assessable income of the applicant in those years.

    Second issue

    The lump sum damages awarded to the applicant on 9 December 2015 in District Court of Western Australia action no.1853 of 2014 represent “compensation or damages for a wrong or injury … [the applicant] suffered in … [his] occupation” for the purposes of

    
    

    s 59-30(3) of the ITAA 97.

    DECISION

19. The Tribunal affirms the respondent’s decision dated 4 October 2017.

I certify that the preceding 58 (fifty -eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle

....[sgd]....................................................................

Associate

Dated: 27 February 2019

Date of hearing:	19 November 2018
Applicant:	In person
Representative for the Respondent:	Mr R McGrade