24 March 1999

Tax Relief For Post-Judgement Interest Awards in Personal Injury Compensation Cases

The Assistant Treasurer, Senator the Hon Rod Kemp, today announced amendments to the income tax law to provide tax relief on the amount of tax payable on post-judgment interest received on awards for damages in personal injury compensation cases.

The Government has reviewed the taxation treatment of post-judgment interest as a result of the decision by the Full Federal Court in Whitaker v Federal Commissioner of Taxation 98 ATC 4285 that post-judgment interest forms part of assessable income in the year in which it is received.

The Government has decided to amend the income tax law to exempt such interest from taxation.

The amendments will ensure that post-judgment interest received in personal injury cases that accrues between the time of the original award of damages and the time at which the matter is finalised either when any right to appeal has expired or when the matter is determined on appeal will be exempt from tax.

The Government takes the view that persons who have suffered personal injuries, and who face a delay in receiving court awarded damages for those injuries, should not bear the burden of income tax on interest received to compensate for any delay until the matter is finally determined in the courts or is otherwise settled.

Because the Full Federal Court decision was the first reported case to deal directly with the question of interest on personal injury compensation awards, these changes will apply to the 1992-93 year of income, the year reviewed by the Court, and later years of income.

The proposed amendments outlined above will provide a fair and equitable taxation treatment for post-judgment interest received in personal injury compensation cases and they will, in fact, provide an equivalent or more generous taxation treatment than currently exists in other comparable jurisdictions.

Legislation giving effect to these amendments will be introduced as soon as possible.

CANBERRA   24 March 1999

Contact Officers:
Matthew Guy
Assistant Treasurers Office
(02) 6277 7360

Tom Meredith
Australian Taxation Office
(02) 6216 2916