Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
Exemption for certain payments made under structured settlements
This bill amends the ITAA 1997 to provide an income tax exemption for annuities and certain deferred lump sums paid under structured settlements to seriously injured persons. The exemption will only be available where certain eligibility criteria are met.
This bill also amends the LIA 1995 to provide that any commutation or assignment of a tax-exempt structured settlement annuity or lump sum will be ineffective.
Date of effect: The amendments to the ITAA 1997 apply, and are taken to have applied, to structured settlements entered into after 26 September 2001. The amendments to the LIA 1995 apply from Royal Assent.
Proposal announced: The proposal was announced in former Assistant Treasurers PressRelease No. 46 of 26 September 2001.
Financial impact: The estimated cost to revenue is set out in the following table:
| 2002-2003 | 2003-2004 | 2004-2005 | 2005-2006 |
| $1.4 million | $2.5 million | $3.6 million | $4.6 million |
This revenue cost is expected to increase to $20 million per annum after roughly 20 years and to stabilise at that level.
Compliance cost impact: The measure is expected to result in a reduction in compliance costs for seriously injured persons. This is because they will not be required to lodge a tax return if their assessable income is below the tax-free threshold.