Annex 1: Minor changes in the law made by the Act: Change 122: Exempt income: personal injury damages: exemption of persons receiving payments on behalf of injured persons: section 734
This change relates to the extension of the provisions exempting personal injury damages paid as periodical payments from income tax, to include payments to a person receiving payments on behalf of an individual entitled to the payments.
Section 329AA(4) of ICTA provides that certain payments paid by trustees to, or for the benefit of, an injured person who is entitled to damages are exempt from income tax. However, that section does not provide that the person receiving the payment on behalf of the person so entitled is exempt from income tax. But, in practice, the person receiving damages on behalf of another is not taxed.
In rewriting section 329AA(4) of ICTA, section 734(2)(b) of this Act extends the persons entitled to the exemption to a person who receives a payment on behalf of the injured person.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice.