Deductions for personal superannuation contributions: employees receiving periodic workers' compensation payments

If an employee receives periodic workers' compensation payments from an insurer as a result of an injury suffered whilst engaging in eligible employment in a year of income and the payments are included in the employee's assessable income for the year of income, are the payments amounts 'attributable to' that eligible employment within the meaning of subsection 82AAS(3) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. If an employee receives periodic workers' compensation payments from an insurer as a result of an injury suffered whilst engaging in eligible employment in a year of income and the payments are included in the employee's assessable income for the year of income, the payments are amounts 'attributable to' that eligible employment within the meaning of subsection 82AAS(3) of the ITAA 1936.

The employee was engaged in 'eligible employment' as defined in subsection 82AAS(1) of the ITAA 1936 during the 2006-07 year of income.

The employee suffered an injury during the course of their employment in the 2006-07 year of income.

The employee received weekly compensation payments from an insurer during the 2006-07 year of income as a result of their incapacity for work.

The compensation payments were based on the employee's weekly earnings before they sustained the compensable injury.

The purpose of the compensation payments was to provide an income replacement to compensate the employee for their loss of earnings as a result of their incapacity to work.

The weekly compensation payments are assessable income under section 6-5 of the Income Tax Assessment Act 1997 .

A person who has made a contribution to a superannuation fund during a year of income is entitled to a deduction for the contribution if the requirements in subsection 82AAT(1) of the ITAA 1936 are satisfied. One of the requirements in subsection 82AAT(1) is that the person is an 'eligible person' in relation to the year of income (paragraph 82AAT(1)(a) of the ITAA 1936).

'Eligible person' is defined in subsection 82AAS(2) of the ITAA 1936. In broad terms, a person will be an 'eligible person' within the meaning of subsection 82AAS(2) in relation to a year of income unless the person received or was entitled to receive superannuation benefits in respect of eligible employment for the year of income. This rule is subject to the application of subsection 82AAS(3) of the ITAA 1936.

Subsection 82AAS(3) of the ITAA 1936 provides that where a person was engaged in particular eligible employment in a year of income, the reference to superannuation benefits in subsection 82AAS(2) of the ITAA 1936 does not include benefits provided for the person in respect of that eligible employment if • the person's assessable income, exempt income and reportable fringe benefits total attributable to eligible employment in the year of income is less than ten per cent of the person's total assessable income and reportable fringe benefits total for the year of income.

'Eligible employment' is defined in subsection 82AAS(1) of the ITAA 1936 and means, in relation to a person: • the holding of any office or appointment; or • the performance of any functions or duties; or • the engaging in of any work; or • the doing of any acts or things

that results in the person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 .

To determine the answer to the question raised, it is necessary to construe the phrase 'attributable to' in the context of subsection 82AAS(3) of the ITAA 1936.

The term 'attributable to' in subsection 82AAS(3) of the ITAA 1936 is not defined. However, the courts have considered the meaning of the term in a number of different cases. For example, in determining whether the plaintiff's loss of employment was 'attributable to' the provisions of the Local Government Act 1972 (UK), Donaldson J in Walsh v. Rother District Council [1978] ICR 1216 at 1220; [1978] 1 All ER 510 at 514 stated: These are plain English words involving some causal connection between the loss of employment and that to which the loss is said to be attributable. However, this connection need not be that of a sole, dominant, direct or proximate cause and effect. A contributory causal connection is quite sufficient.

Donaldson J's comments were cited with approval by the High Court in Commissioner of Taxation v. Sun Alliance Investments Pty Limited (in liquidation) [2005] HCA 70; (2005) 60 ATR 560; (2005) 2005 ATC 4955

In Repatriation Commission v. Law (1980) 31 ALR 140, the Full Federal Court said at 151: It seems clear the expression 'attributable to' in each case involves an element of causation. The cause need not be the sole or dominant cause: it is sufficient to show 'attributability' if the cause is one of a number of causes provided it is a contributing cause...

In McIntosh v. Federal Commissioner of Taxation 79 ATC 4325; (1980) 10 ATR 13 the Full Federal Court considered whether there was a causal connection between a commutation payment and the employee's termination of employment. Brennan J said that: ...Though the language of causation often contains the seeds of confusion, I apprehend his Honour to hold the required nexus to be (at least) that the payment would not have been made but for the retirement.

In the present circumstances, the eligible employment of the employee is not the direct or proximate cause of the workers' compensation payments. Rather, the direct or proximate cause of the payments to the employee is the injury suffered by the employee during the course of their employment. Notwithstanding this fact, the injury would never have arisen but for the eligible employment of the employee. There is thus a contributory cause or connection between the eligible employment and the workers' compensation payments to show 'attributability' within the meaning of subsection 82AAS(3) of the ITAA 1936.

Therefore, if an employee receives workers' compensation payments from an insurer as a result of an injury suffered whilst engaging in eligible employment (as that term is defined in subsection 82AAS(1) of the ITAA 1936) in a year of income and the payments are included in the employee's assessable income for the year of income, the payments are amounts 'attributable to' that eligible employment within the meaning of subsection 82AAS(3) of the ITAA 1936. That the workers' compensation payments are not paid by the employer does not affect this conclusion.