Workers compensation is a form of insurance payment paid to employees if they are injured at work or become sick due to their work. The workers compensation payment is not a wage.
An employee can be paid workers compensation in three ways:
- Directly by the insurer.
- From the insurer through the employer.
- By the workers compensation regulator.
Workers compensation payments received by employees are taxed at the standard tax rates and normally subject to PAYG withholding tax.
As the employee is not working, work related deductions don’t generally apply to workers receiving workers compensation. But in ATO ID 2012/73, the ATO confirmed that a taxpayer receiving workers compensation payments, and who must provide a medical certificate to the paying authority as a condition of receiving those payments is entitled to a tax deduction for the travel costs incurred.
The travel costs incurred can be claimed as a deduction based on the cents per km rate for the kilometres travelled to and from the doctor’s surgery, or based on the out of pocket travel costs incurred (such as for bus, train or taxi fares).
This is to be contrasted with travel costs to attend medical appointments for medical treatment. These actual medical expenses and the associated travel cost are considered private and non-deductible.