I am negotiating a lump sum compensation payment for an injury under workers compensation. I have been advised this will be untaxed, as the ATO "does not tax undivided lump sum payments", which I believe is correct. My employer is calculating the compensation amount on my nett salary not gross. If I had been paid under normal PAYE arrangements, I would have claimed back tax I'd paid at the end of FY, meaning I would receive more than my nett salary. If I am paid a lump sum at the nett salary rate I am getting less, and my employer is better off. For example: let's say under PAYE my employer pays me gross salary of $50000pa and takes out $5000 tax they send to ATO; at end of year I've got $45000 in hand plus maybe some or all my tax back due to deductions. Under lump sum tax-free payment, my employer only pays me the nett salary amount of $45000; I miss out on tax deductions I would have claimed so get less than I would have under PAYE. More importantly, my employer isn't paying the ATO the difference in my gross and nett salary, so they are $5000 better off because they only pay $45000 as a lump sum salary cost, not the $50000 they would normally have paid under PAYE. Isn't that the same as my employer withholding income tax, but not paying it?
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Workers comp claims should be administered by the workers comp authority in your state.
A claim must be lodged through the employer.
Claims are then advanced via a law firm specialising in that area.
Payments for pain and suffering are not taxable, but any payment for replacement of income is taxable - even if paid as a lump sum. There have been a number of court cases that support this principle.
You should be talking to your lawyer to ensure the claim is being handled properly.
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Workers comp claims should be administered by the workers comp authority in your state.
A claim must be lodged through the employer.
Claims are then advanced via a law firm specialising in that area.
Payments for pain and suffering are not taxable, but any payment for replacement of income is taxable - even if paid as a lump sum. There have been a number of court cases that support this principle.
You should be talking to your lawyer to ensure the claim is being handled properly.
Hi. Thanks for your advice. This is being done through WC Tribunal, who require parties to try to reach mutual settlement before full Tribunal hearing. I have a lawyer. The proposed lump sum payment is for lost wages only, not pain and suffering. Lawyer says it will be untaxed as ATO does not tax undivided lump sum payments. They propose paying lost wages compensation at the nett not gross salary rate (because undivided lump sums are not taxed). But, in paying me the nett salary the employer is effectively collecting tax on my gross income (paid as a lump sum), and not giving that to ATO. I didn't think tax could be collected and kept by my employer.
Sorry, I should have said the total compensation has 3 components to be paid all together: lost wages, medical expenses, and permanent injury. That's presumably why it will be untaxed as it is undivided. But my question goes to getting nett not gross wages compensation, because the employer is not paying the ATO the difference between gross and net.
You need to follow your lawyer's advice in this area.
Ok thanks. Appreciate your response. I'll talk to ATO.
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