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Redemption settlement taxation 2018

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Hello everyone, I hope someone out there has some experience in this, I am aware that the legislation has recently changed regarding the RS being taxed. That is not a problem it's the amount and how it is being done by some services that is confusing to me....I will try to summarize this rather complex issue as briefly as possibly and without exposing the organisation involved.

 

I lodged a Workcover claim in November 2017, this was rejected, so I appealed. During this time I was paid sick leave, rec leave, annual leave, retention leave to stay afloat while waiting for the Appeal outcome. In June 2018 my claim was accepted and I negotiated a Redemption settlement of $50,000. Part of the process of accepting the Redemption settlement was to meet with a financial advisor who advised me that I would be responsible for paying the taxation myself next financial year. He advised to put aside about $5000 instead what happened was my payroll department taxed me at 33% because I had not recieved regular payments at that time. It had taken two months for the process to progress so the longer it took the more time had passed a specific pay period or pay periods so they applied an average marginal tax rate (MTR) as prescribed by the ATO. Since the Redemption Payment did not relate to a specific pay period (or pay periods) they felt it was appropriate to apply this methodology. They said that the ‘base’ for this calculation is dependent upon each situation.  Where the last pay consists of a regular amount then the last payment would be used; however, if there is a variation in the employee’s pays then an average is used. 

Had I accepted a weekly payment then my average tax would have been 19% approx, I had not worked nor did I recieve my usual yearly salary for 2017/2018 financial year and it was now a new financial year. I was already under severe psychology stress infact my claim was for psychological injury so this 'surprise' put me in further financial & psychological distress I cannot understand how a Redemption settlement compensation payment can be treated like a salary for the previous financial year and then the higher tax bracket be applied. 

 

Does anyone have any advise on this, if so where would I find the policy or guidelines for making such a decision without consultation with the injured worker. My lawyer says that this has recently changed and some services are interpretting the new legislation wrongly. 

 

Can anyone help advise please, I live in South Australia. Thank you, Basia 

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Hi @basiahel,

 

Thanks for your patience whilst we received information from a specialist area regarding your query!

 

A redemption payment received by a worker under section 53 (Return to Work Act 2014 (SA)) is considered to be ordinary income and is included in the worker's assessable income in the income year in which it is received.

 

The tax payable on any income received will depend on a variety of factors, including other income received in the same period and the nature of the payment. More information on the applicable individual income tax rates and calculators can be found on our website.

 

You can find further information on the assessability of a redemption payment made under the Return to Work Act 2014 (SA) in Taxation Determination TD 2016/18 Income tax: is a redemption payment received by a worker under the...

 

Hope this helps, JodieH.

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Hi @basiahel,

 

Thanks for getting in touch!

 

We're checking information regarding your query with a specialist area and we aim to get back to you as soon as possible.

 

Thanks, JodieH.

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Hi @basiahel,

 

Thanks for your patience whilst we received information from a specialist area regarding your query!

 

A redemption payment received by a worker under section 53 (Return to Work Act 2014 (SA)) is considered to be ordinary income and is included in the worker's assessable income in the income year in which it is received.

 

The tax payable on any income received will depend on a variety of factors, including other income received in the same period and the nature of the payment. More information on the applicable individual income tax rates and calculators can be found on our website.

 

You can find further information on the assessability of a redemption payment made under the Return to Work Act 2014 (SA) in Taxation Determination TD 2016/18 Income tax: is a redemption payment received by a worker under the...

 

Hope this helps, JodieH.

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