Issue
Is a portion of the out of court settlement payment for unfair dismissal excluded from being an eligible termination payment (ETP) under paragraph (n) of the definition of an ETP in subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) as consideration for personal injury?
Decision
No part of the settlement payment is excluded from being an ETP under paragraph (n) of the definition of an ETP in subsection 27A(1) of the ITAA 1936 as the taxpayer does not have a personal injury.
Facts
The taxpayer's employment was terminated without prior notice or warning of any kind.
The taxpayer and employer agreed to a settlement and entered into a deed. The deed included a provision describing an amount of the settlement payment as compensation for personal injury sustained by the taxpayer from the stressful work environment and treatment to which the taxpayer was subjected prior to the termination of employment.
The taxpayer consulted a doctor on two occasions with physical symptoms including vomiting, insomnia and frequent occurrence of agitation resulting from the emotional stress of the termination of employment.
The taxpayer subsequently gained new employment.
Reasons for Decision
Paragraph (n) of the definition of an ETP in subsection 27A(1) of the ITAA 36 specifically excludes an amount from being an ETP if it is consideration for personal injury to the taxpayer.
The term personal injury is not defined in the ITAA36. Graham v. Robinson [1992] 1 VR 279, per Smith J at 281: 'In the absence of express authority, I have come to the conclusion that the expression "personal injury" does not extend beyond physical injury and mental illness to include emotional hurt...... It is true that damages are awarded for pain and suffering in the typical personal injury case. They are awarded, however, where pain and suffering flow from and are connected with physical or mental injury and may therefore be said to be damages "in respect of personal injury" '.
In considering the meaning of personal injury for the purpose of paragraph 27A(1)(n) the Administrative Appeals Tribunal (AAT) has cited Graham v. Robinson, in AAT Case 20/97; No 11 722 35 ATR 1114, 97 ATC 258 and McMahon v. Federal Commissioner of Taxation 41 ATR 1056, 99 ATC 2025, and held that personal injury does not extend beyond physical injury or mental illness.
On the evidence presented, the taxpayer does not have a personal injury. Accordingly, no amount of the ETP can be consideration for, or in respect of, a personal injury to the taxpayer. .