The ATO on Wed 23.11.2016, released Taxation Determination TD 2016/18, which states that a redemption payment as outlined is ordinary income of the worker and is assessable under s 6-5 of the ITAA 1997 in the income year which it is received. It was previously issued as Draft Taxation Determination TD 2016/D1 and is largely the same.
For these purposes a ‘redemption payment’ is as set out in para 2 of the determination:
“2. For the purposes of this Determination, a payment is a redemption payment to the extent that:
- it is made pursuant to subsection 53(1) of the Return to Work Act 2014 (SA) (RWA) [1]
- it is made to redeem a liability to make weekly payments under section 39 or 41, and
- it is not an employment termination payment for the purposes of subsection 82-130(1) of the ITAA 1997.
In other words, this is about the redemption of compensation payments under specific South Australian legislation, which entitle a worker to weekly amounts whilst injured. These amounts are set by reference to the workers notional weekly earnings, are linked to increases in the Federal minimum wage and can be reduced or discontinued for changes in the workers incapacity or on reaching retirement age.
It does seem that the potentially redeemable amounts are income in nature and thus the redeemed amount would be a substitute for that income and thus income itself. Having said this, it is a fraught area as noted in this related Tax Month article about the draft of this determination: TD 2016/D1.
As a consequence of the release of the Determination, the ATO on Wed 23.11.16, also issued an Addendum to Taxation Determination TD 93/3 (Is a payment, being a partial commutation of weekly compensation payments, assessable income?). It applies on and from 23 November 2016.
DATE OF EFFECT: Applies only to redemption payments made under agreements entered into on or after 10 August 2016.
[ATO site – TD 2016/18] [LTN 227, 23/16]