Are WorkCover payments taxable?Published on Posted on
Please note that this post was written for Queensland audiences and the information within may not apply to other regions.
As tax time has arrived and we get the paperwork and receipts ready to lodge our tax returns, it’s common to wonder “do I have to pay tax on my WorkCover payments?”
The answer to this depends on the type of WorkCover payment you’re receiving (or have received).
There are two types of WorkCover claim benefits to consider: the weekly statutory payment and the common law lump sum settlement.
Generally, if the payments relate to your loss of income because of your injury, then it will usually be assessable income and therefore taxable. But when is this the case?
Are weekly WorkCover payments taxable?
Yes. The statutory payments you receive from WorkCover on a weekly basis are taxable just as regular wages from your employer would be taxed (and will be taxed at the same rate). This is because the weekly payments are essentially an income subsidy while you’re injured and off work.
So, you will need to declare any WorkCover workers’ compensation benefits as part of your yearly tax declaration to the Australian Taxation Office. This also goes for payments of weekly benefits to dependent children.
Whoever is paying your benefits, whether it be WorkCover or your employer, should provide what’s called a statement of payments (similar to a PAYG summary) to use for this. However, this only applies to the weekly statutory workers’ compensation payments, and not the lump sum.
Do I have to pay tax on my WorkCover lump sum?
No. You will not pay tax on a lump sum workers’ compensation settlement. This is because the payout is not seen as a wage but as compensation for the injury that happened to you and the impact on your ability to do everyday tasks.
Lump sum WorkCover payments are made for cases of permanent impairment from your injury or illness. You do not have to pay tax on it. This includes both permanent impairment payments from WorkCover at the end of your statutory journey, as well as common law lump sum payments.
However, it is important to note that your in-hand common law lump sum settlement may be less than the initial figure, because you will be required to pay back Centrelink, Medicare etc. for any payments made to you during the course of your claim.
Not only this, but if you have any government debts such as child support debts or tax debts, they will also be taken from your compensation settlement before you receive your settlement.
Can I make tax deductions while on WorkCover workers’ compensation?
It depends. While your WorkCover benefits are treated as a wage for tax purposes, the money comes from WorkCover as the insurer and not your employer. And since you’re not actually working, and have nothing to outlay for work purposes, you won’t be eligible to claim standard tax deductions like uniform expenses.
But you can still claim tax deductions that are relevant to your job while you were working, however (if it falls in the same financial year).
All in all, you do not have to pay tax on any lump sum workers’ compensation you receive, but you do have to pay tax on your regular weekly workers’ compensation benefits.