Are legal settlements considered taxable income in Queensland?
No, you do not need to disclose your compensation payment to your accountant or to the ATO in your income tax return. This means the taxation of compensation payments is non-existent. There is no Capital Gains Tax payable on a personal injury settlement either. To directly quote the tax office:
“A payment does not need to be made as a result of proceedings before a court to be deemed as compensation – however, the employee or employer should keep evidence to show that a genuine dispute existed.”
Do I need to pay tax on income generated from my personal injury settlement?
Though there is no tax on compensation for personal injury, if you invest your settlement money and earn interest or other income on the investment, you will be required to declare that income to the ATO. This means if you invest this money into a new business, any future money made from this venture will need to be declared in your taxation return as it is now considered taxable income. The same rule applies for if the compensation is placed into a bank account where it will generate interest. The interest earned is considered income and will also need to be declared in your taxation return when lodging it with the Australian Taxation Office.
Is Workers Compensation Taxable in Queensland?
WorkCover is a form of insurance payment which is paid to an injured worker for the duration they are unable to work. This is paid as a percentage of the usual wage of the worker, and while it is not considered to be a wage (since it is paid by WorkCover) it is still considered income. This means that weekly benefits that you may receive from WorkCover or your income protection insurer are taxable and should be disclosed.
This means that since it is treated like a salary, some workers compensation payments are taxable income.
What Types of Settlements Are Not Taxable?
Compensation and damages settlements payments or awards, including for personal physical injuries or physical sickness are not taxable. This means that you are not required to disclose your compensation or damages payment achieved from your personal injury claim in your tax return when lodging it with the Australian Taxation office.
If you’re considering seeking compensation for a personal injury, contact GC Law for a free no obligation consultation or call us on 1300 302 318.
