Lawyers Fear Tax Plunder Of Injury Awards
Sydney Morning Herald
Wednesday August 21, 1996
Personal injury lawyers have expressed alarm over a landmark court ruling yesterday which will allow the Commissioner of Taxation to raise millions of dollars each year by taxing interest payments in compensation cases.
They say the "puzzling" judgment will affect thousands of people each year, including some of the most disadvantaged people in the community, and they fear the commissioner could plunder compensation payouts made in recent years.
Justice Hill of the Federal Court ruled yesterday for the first time in Australia that interest added to an award of damages for personal injury was "income" and therefore assessable to be taxed.
He made the finding while reviewing the case of a blind woman who was arguing she should not have to pay about $168,000 in tax as a result of successfully suing her eye surgeon for $808,564 in the Supreme Court in 1990. The judge disagreed.
There was doubt last night over whether the commissioner would apply the ruling retrospectively.
The president of the National Tax and Accountants' Association Ltd, Mr Ray Regan, estimated that up to 300,000 people awarded a total of $10 billion in damages and interest over the past four years could be affected.
A Tax Office spokesman said last night the issue of retrospectivity was "not a priority" but the judgment would be carefully examined. However, a statement issued moments earlier said: "If people who have not paid tax on interest income received in relation to compensation payments come forward, the ATO will take a sympathetic view to their situation."
The blind woman, Mrs Maree Whitaker, of Miranda, described as "barbaric" the Government's tax grab
"They're basically giving it (damages awards) to them (victims) with one hand and taking it back with the other and I think it is discrimination at its worst," she said. "I realise that they have to bring in revenue but I think they are going about it the wrong way."
The president of the Australian Plaintiff Lawyers' Association, Mr Peter Semmler, QC, said any plan to make the ruling retrospective would be wrong and create havoc, stressing that many plaintiffs had settled their claims on the basis no part of their award would be taxable.
"Throughout Australia there would be thousands of people who have received interest on damages ... who have not been taxed," he said. "There is an enormous amount of money ... at stake if the commissioner proposes to apply this ruling to past verdicts and settlements."
The principal of the Sydney law firm Cashman and Partners, Dr Peter Cashman, described the ruling as "a regrettable decision that will further erode the already pathetically low amounts of compensation awarded to injured plaintiffs".
"Personally, I don't understand the logic of it," he said. "I think if the decision is not overturned on appeal then there is a need for legislative reform ... I would have thought there were some serious arguments to the contrary to those adopted by Justice Hill."
Mrs Whitaker said the ruling would affect vulnerable people like her, including people on life-support machines "who can't fight back", who planned to use the money to meet daily needs - not to invest.
© 1996 Sydney Morning Herald