Tax On Personal Injury Awards
Sydney Morning Herald
Sunday August 25, 1996
The Federal Court decision on August 21 that pre-judgment interest awards in personal injury cases are liable to income tax is a further burden on seriously injured people who are least able to pay additional taxation.
The rate of interest allowed by judges on awards for pain and suffering is significantly lower than commercial rates because the court has already taken income tax into account. A further grab by the Australian Taxation Office (ATO) at payouts to victims by taxing the interest component of their damages will further deplete the amounts awarded to people who in some cases (such as the claims over the Voyager tragedy) have been deprived of the use of their money for 30 or more years.
It will be grossly unfair if the ATO seeks to apply the decision retrospectively to past awards of compensation. Thousands of seriously injured accident victims have settled their claims and arranged their affairs on the basis that their once and for all damages award would not be taxed.
It is one thing retrospectively to seek to recover taxes from people who have used illegal schemes to avoid tax. It is quite another to pursue disabled Australians who must rely upon their compensation payout to support themselves.
Peter Semmler QC,
President, Australian Plaintiff Lawyers' Association,
August 22 Sydney.
While I extend my sympathy to Ms Whitaker, I feel compelled to point out that the ATO'S successful court action represents no landmark decision.
The fact is, as properly determined by Justice Hill, that interest on awards of damages is (and always has been) taxable. As a successful plaintiff, you are assessable on interest accrued on the awarded sum from the date of damage until the date the award is made, just as you are assessable on interest accrued after the awarded sum has been deposited in your bank account.
To argue otherwise is a legal nonsense.
The trouble is, few litigation lawyers appear to know much about tax law. I suggest, in their clients' interests, that they start to make an effort.
Bert Poulton,
August 22 Bruxner Park.
© 1996 Sydney Morning Herald
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