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14 Jun 2005
Appeal Status

Certain ACC "Interest" receipts exempt from tax

2005 case note – payments of 'interest' by ACC exempt from tax in the hands of the recipient – penalty payments, assessable income.

CIR v Buis and Burston


Payments of "interest" by the Accident Compensation Corporation (ACC) under a specific ACC provision are exempt from tax in the hands of the recipient.


This judgment is from an appeal by the Commissioner of the TRA cases W54 & W58. It involved two taxpayers who received earnings related compensation from ACC. Payment to the taxpayers was delayed due to a dispute between them and ACC.

As a result of the delay, the taxpayers were awarded a lump sum payment of interest for late payment of the compensation (under section 72 of the Accident Rehabilitation and Compensation Insurance Act 1992 (ARCIA)).

The Commissioner assessed both interest payments as assessable income.


Section 76

Section 76 of the ARCIA provides a statutory framework for when certain ACC payments were taxable or exempt from tax. The Judge found that section 76 referred to compensation in relation to accidents. The section 72 payments were not paid as a result of any accident and so section 76 did not apply.

The Judge was of the view that payments under section 72 were in the nature of a penalty against the ACC for not paying out compensation when it should have.


The IRD argued in support of its submission that:

"The question is whether a statutory penalty imposed to discourage administrative delays is in the hands of the recipient gross income under ordinary concepts".

The Judge found that the payment in the hands of the taxpayers was in the nature of penalty payments and therefore capital.

Furthermore the Judge noted that there were no withholding tax obligations, no reporting obligations and no procedural mechanisms between ACC and Inland Revenue.

For these reasons the appeal was dismissed.

Accident Rehabilitation and Compensation Insurance Act 1992, Income Tax Act 1994