How your payments are taxed

You may need to pay tax on the benefit payments you receive.  

How much you pay depends on your personal circumstances.  

You should speak with the Australian Taxation Office (ATO) or a registered tax agent to get the right advice.

Send us your tax file number (TFN) declaration

We use your TFN to work out how much tax to withhold from your weekly compensation payments.

If you don’t send us your TFN or claim an exemption, we’ll have to withhold the highest rate of tax from your payments.

How to send your TFN declaration

Submit your TFN declaration online with either:  

• Worker Assist
• downloading and filling out the TFN Declaration (PDF, 0.08 MB) and sending it to us.

Claiming the tax-free threshold

You may be paid by both us and your employer when you return to suitable duties.  

You can usually only claim the tax‑free threshold from one payer at a time.  

You’d normally claim it from the payer who gives you the highest income, as they’re considered your main source of earnings.  

PAYG tax withholding

We are normally required to withhold tax from weekly compensation (lost wages) and send the withheld amount to the ATO.  

We will use your TFN Declaration to work out how much tax to withhold.  

Payment summaries

We will issue you a PAYG Payment Summary by 14 July each year if you were paid weekly compensation.  

We will also give a copy of your payment summary to the ATO.   

This shows how much we paid you in the financial year and how much tax we withheld.  

Weekly compensation payments (listed on your PAYG Payment Summary) should be included on your income tax return each year.

If we have to give you an amended payment summary you may need to amend your income tax return with the ATO.

Requesting a part-year payment summary  

Part-year payment summaries provide details of withholding payments made from either: 

• 1 July of that financial year to the date of issue of the payment summary
• the date of issue of any previous part-year payment summary to the date of issue of the current one.

You need to write to us to request your part-year payment summary before 9 June.  

This is 21 days before the end of the financial year on 30 June.  

We must provide your payment summary within 14-days of your request.  

Tax on lump sum payments

A lump sum payment you receive for a permanent injury at work is usually not counted as taxable income.

This is because the lump sum payment is meant to compensate you for losing physical abilities and mental injuries.  

Lump sum payments relating to previous financial years

Sometimes we might pay you a lump sum that covers unpaid weekly compensation from past years.  

If this happens, the full amount will be shown as a Lump Sum Component E on your PAYG Payment Summary in the year you receive it.  

You’ll also get a breakdown showing which financial years the payment relates to. You’ll need this information to complete your tax return.

Lump sum offsets for tax and Medicare

Because past-year income is added to your current year’s tax, you might end up having more tax withheld than if it was taxed in the year it was earned.

You may be eligible for a Lump Sum in Arrears Offset and in some cases a similar offset to reduce the Medicare Levy Surcharge.  

These rules can be complex, while information is available on the ATO website, you may prefer to get professional tax advice. 

Tax payments relating to dependent children

Weekly payments made for dependent children are taxed at normal PAYG rates.

The higher tax rates that usually apply to people under 18 don’t apply unless the child is a non‑resident for tax purposes. 

These payments follow the usual PAYG rules, which means we may request a TFN declaration for each dependent and issue a PAYG payment summary in their name.

We also have an ATO private ruling that confirms how these payments should be taxed.

Common law claim damage payments

The amount of compensation we have already paid, both to you and the ATO, will be taken into account when your common law claim is resolved.

Payment summaries do not need to be amended by us when a common law claim is resolved.

Please speak to your lawyer if you have any questions about common law payments and tax.

Third-party recoveries 

We may recover the costs of your claim from another insurer.  

Even if this happens, it doesn’t change the fact that you received weekly compensation from us.  

Even though you may not have paid us back yourself, we don’t need to send you an updated PAYG Payment Summary.  

Tax on overpayments

You must repay any overpayments from us.

If you were overpaid in one financial year and the mistake is found in a later year, you’ll need to repay the full amount.

This is called the gross amount and includes both the overpayment you received and the tax that was originally withheld.

We will generally issue an amended PAYG Payment Summary showing what you should have been paid in that year.

The tax withheld amount on the amended summary won't change.

If you’ve already lodged your tax return for that year, you may need contact the ATO.