The principle established in Fox v Wood(1981) 148 CLR 438 is that the plaintiff is entitled to recover the additional income tax paid in respect of refundable workers compensation receipts.
When a plaintiff receives common law damages for economic loss, any workers compensation paid to the plaintiff in respect of that accident is required to be repaid to the workers compensation insurer. The amount repaid is the gross receipts before tax. The plaintiff, however, paid tax on those receipts and only received the net amount. By repaying the gross amount, the plaintiff is worse off as a result. Fox v Wood addresses this issue by allowing the plaintiff to claim the additional tax paid on the refundable workers compensation.
Where workers compensation is required to be repaid, there will be a corresponding Fox v Wood claim. The quantum of that claim can be substantial in some cases.
Fox v Wood is calculated as the difference between the tax on the plaintiff's taxable income and the tax on the plaintiff's taxable income less the refundable workers compensation.
For example:
A plaintiff in the 2009 year earns $20,000 gross pre-accident and, following an accident on 1/1/2009, does not return to work and receives $20,000 gross workers compensation. Tax has been deducted from all payments to the plaintiff. Upon settlement, if it proceeded to common law, the plaintiff is awarded damages for past economic loss and is required to repay the workers compensation received.
The Fox v Wood claim in respect of the 2009 financial year is calculated as follows:
| Total Income = $40,000 | |
| Tax on Total Income (1) | $5,800 |
| Non Refundable Income = $20,000 |
|
| Tax on Non Refundable Income (2) |
$1,169 |
| Fox V Wood Claim (1)-(2) | $4,631 |
Where workers compensation is required to be refunded, a corresponding Fox v Wood claim will result. The quantum of that claim is often far greater than the tax deducted by the workers compensation insurer.
One of the difficulties in calculating Fox v Wood claims and working out how much the plaintiff has earned post-accident is interpreting the information you receive from employers.
We need to know from employers two different groups of information:
We need to therefore ask two separate sets of questions to ascertain both capacity and earnings. Often, the questions are combined and, as a result, the employers answers are confusing.
You can use the tax calculator on our online tools pages to calculate Fox V Wood claims quickly.
Update:
See our post: Calculating Fox v Wood Claims for a template that you can use.