25 Mar 088 Review of income tax exemption for structured settlements paymentsIn a press release issued on 11 September 2007, the former Minister for Revenue and Assistant Treasurer, Peter Dutton, announced a review of the effectiveness of the income tax exemption provided by Division 54 of ITAA 1997 for payments made under structured settlements to seriously injured people: see 2007 TAXVINE No 36 (10) (14 September 2007). Division 54 was introduced in 2002 to encourage the use of structured settlements to compensate accident victims. A structured settlement involves regular payments over the lifetime of the injured person rather than a one-off lump sum. Structured settlements offer injured people more security about their future income and their capacity to meet ongoing medical expenses.
Mr Alan Cameron AM, who undertook the review, has now delivered his report to the Assistant Treasurer, Chris Bowen. He concludes that structured settlements have not been taken up in Australia, but not because of their tax treatment. Life insurance companies have not been able to offer lifetime annuities indexed to the All Groups Consumer Price Index (CPI-indexed lifetime annuities) at an attractive price. Also, it seems annuities are not popular products for a number of reasons, including their lack of flexibility and the inability to leave any residual capital as an inheritance for dependants.
Mr Cameron also noted that the investment strategy of placing compensation payments into a superannuation fund and drawing an allocated pension is attractive to many accident victims because it gives them more flexibility than a lifetime annuity regarding payment options, investment choice and access to capital. Mr Cameron said he would support changes to the superannuation rules to remove any impediments to the use of allocated pensions by all accident victims.
For a copy of the report, go here or here
For a copy of the Government response, go here