Taxation for claimants
Please note: The information on this page is general guidance only and does not constitute professional tax advice. Seek professional tax advice specific to your situation.
First, check this quick guide to weekly benefits and tax to find out when the insurer will withhold tax from your weekly payment of statutory benefits.
When will my tax be withheld?
| When | Type of resident | Will tax be withheld? | Rate at which tax will be withheld |
|---|---|---|---|
| 0-78 weeks after your accident | Australian residents (except for at fault CTP policy holders) | Yes | Applicable individual income tax rates |
| CTP policy holder for the vehicle the claim is lodged against | No | ||
| Overseas residents | Yes | Applicable foreign resident income tax rates or working holiday maker tax rates | |
| After 78 weeks from your accident | Australian residents | No – weekly benefits calculated on a net amount per week with no tax remitted to the ATO. | |
| Overseas residents | No – weekly benefits calculated on a net amount per week with no tax remitted to the ATO. | ||
| No tax file number declaration | Australian residents | Yes, weeks 0-78 after the accident | Top rate of tax plus Medicare levy |
| Overseas | Yes, weeks 0-78 after the accident | Applicable foreign resident income tax rates |
Why do I need to complete a tax file number declaration after a motor accident injury?
If you were injured in an accident and are eligible to receive weekly payments of statutory benefits, your insurer will send you an Australian Taxation Office (ATO) tax file number (TFN) declaration for you to complete and return. The TFN declaration can also be downloaded from the ATO website.
This declaration allows the insurer to withhold, from your weekly payments, the correct amount of tax. They will also withhold the following study and training support loans if you have any:
- Higher Education Loan Program
- VET Student loan
- Financial Supplement
- Student Start-up Loan
- Trade Support Loan
You need to complete your declaration before you start to receive weekly payments for statutory benefits. If you don't complete the declaration and return it to the insurer before weekly payments begin, the insurer is required by law to withhold the top tax rate (currently 45%) plus the Medicare levy from all payments made to you.
Note: Some people are exempt from providing a TFN declaration – see the ATO website for more information.
Note: All information collected in the declaration, including personal information, is treated confidentially by the insurer in line with all applicable privacy and data protection legislation, including the Motor Accident Injuries Act 2017 (NSW) and the Privacy Act 1988 (Cth).Why does the insurer withhold tax from my weekly payment of statutory benefits and remit it to the ATO?
After a motor vehicle accident, you may be eligible to receive weekly payments of statutory benefits if you have a partial or total loss of earnings. Payment for loss of earnings may be made for up to 78 weeks after the date of the accident. The first 13 weeks is the 'first entitlement period' and weeks 14-78 are the 'second entitlement period'. The ‘third entitlement period’ refers to the period after 78 weeks.
According to the Commissioner for Taxation, weekly payments up to the end of week 78, are payments for loss of earnings. This means, until the end of week 78 (that is, for the first and second entitlement periods), the insurer may withhold tax from your payments to remit to the ATO.
If you are eligible to receive weekly payments of statutory benefits for total loss of earnings as a result of your motor accident, the insurer will calculate the amount of your weekly payment, taking into account any applicable tax-free threshold. As these weekly payments are a replacement of your loss of earnings, the insurer will withhold the applicable taxation amount as at the time of payment.
If you are eligible to receive weekly payments of statutory benefits for partial loss of earnings, the insurer will generally calculate the amount of your weekly benefits as though they are your 'second employer’. They will not take into account the tax-free threshold, which would instead be applied by your employer. The insurer may still apply the tax-free threshold if you make a request on the TFN declaration and confirm that your employer is not applying the tax-free threshold to the amount you receive from them.
If you indicated on your TFN declaration that you have a study and training support loan, the insurer will withhold an additional amount from your weekly benefits as an additional tax instalment.
If you are an overseas visitor or you are not an Australian resident for taxation purposes, the insurer will withhold the applicable 'non-resident tax rate'.
If you have a taxation arrangement other than the marginal taxation rates, for example Australian Defence Force personnel, and you're unsure about how your tax is calculated, you should contact the insurer or the ATO for advice.
As the insurer is making payments for loss of earnings, they will issue you with a 'PAYG payment summary' at the end of each financial year.
What if I am the CTP policy holder for the vehicle the claim is lodged against?
If you are injured in an accident and you are the CTP policy holder of the claim the vehicle is lodged against, the insurer will not withhold tax from your weekly benefits payments. If you have any questions about the taxation implications, contact the insurer or the ATO to discuss.
What happens after 78 weeks?
If you are eligible to receive weekly statutory benefits payments after 78 weeks also referred to as after the second entitlement period, the insurer will calculate your entitlement to statutory benefits for loss of earning capacity on a net amount per week and will not remit a sum for tax to the ATO. The Commissioner for Taxation advice is that the weekly statutory benefit for loss of earning capacity in the period is regarded as a capital asset rather than income. Therefore, there is no tax component to be remitted to the ATO in respect of these payments. (see also Allianz Australia Insurance Ltd v Jenkins [2020] NSWSC 412).
Any payments of weekly compensation for loss of earning capacity for periods after the second entitlement period will not be included in the 'PAYG payment summary' issued at the end of the financial year.