Attachment C
Claims Management Centre
Phone: 1300 366 979 Fax:
SAFETY REHABILITATION & COMPENSATION ACT 1988
I am writing to you with regards to who is currently in receipt of weekly compensation payment from Comcare for sustained on .
Section 30 of the Safety, Rehabilitation and Compensation Act 1988 allows Comcare to determine that if an employee is in receipt of weekly payments under $71.53 (indexed), and that the degree of incapacity suffered by the employee is unlikely to change, Comcare will redeem the weekly payments by awarding a lump sum.
Based on the current weekly entitlement of $, has been awarded a lump sum redemption of $.
Advice received from the Australian Taxation Office (ATO) makes it clear that lump sum redemption payments are generally an 'income substitute' and as such are assessable pursuant to section 6-5 of the Income Tax Assessment Act 1997. This lump sum redemption payment is subject to tax instalment deductions at the rate of tax determined using the employees latest Employment Declaration.
The appropriate rate of tax to be deducted from this assessable lump sum is determined by:
- dividing the amount of the redemption calculated under s30(2) by 52 to get a figure representing the weekly amount of income to be received by the taxpayer;
- using the employee's latest Employment Declaration find the rate of tax applicable to the weekly amount above then multiply this by 52 to give the amount of tax to be deducted from the lump sum.
This method is in accordance with the principle that a taxpayer's total income in the year of receipt is taken into account in determining tax liability for that year. The ATO has asked us to note that the method used to calculate the amount of tax instalments to be deducted from an assessable lump sum redemption is likely to result in the employee underpaying tax. This is because the lump sum, when added to all other income received during the year, can be enough to move the employee into a higher tax bracket. The paying agency can only deduct a higher rate of instalments from the lump sum where the claimant has asked in writing for them to do so.
Because of the taxation and Group Certificate implications it is not feasible for Comcare to pay direct by cheque. In line with the current procedures for payment of incapacity entitlements, it will therefore be necessary for your agency to determine the after tax amount payable and make payment direct to . The gross amount is to be shown as earnings in their Group Certificate.
The gross amount to be paid will appear in the Incapacity Payment Authority issued by Comcare.The redemption amount will then be paid on your next available Incapacity Reimbursement cheque.
If you have any enquiries regarding these payments, please contact me on .
Yours sincerely,
for Comcare
22 November, 1999
Encl. Letter to employee