Here you will find information for injured people about the tax treatment of structured settlements and structured orders. The components of a structured settlement and structured order are outlined below. As structured settlements are expected to be far more common than structured orders, they are the primary focus of this fact sheet.
Who should consider a structured settlement?
If you have a severe personal injury because of the fault of someone else, you may be able to make a claim against that person or their insurer for compensation. A lawyer can advise you whether or not you have a valid claim.
You may be entitled to receive your compensation in the form of a lump sum or a structured settlement.
You can arrange to receive your compensation in the form of a structured settlement only in certain types of cases and only if your compensation is sufficiently large.
You can only enter into a structured settlement if the lump sum compensation payment that you would be awarded if your case was decided by a court would be a tax-free capital payment.
Also note, structured settlements are not available for workers' compensation type claims.
What is a structured settlement?
A structured settlement is the result of an agreement between the parties to a personal injury case. A personal injury case may arise from medical negligence, sporting accidents, motor vehicle accidents, and public liability or product liability. The parties to the case will generally be you or your legal personal representative (for example a trustee or person with your general power of attorney), the defendant (who is the person or organisation you are seeking compensation from), and in most cases the defendant's insurer.
What is a structured order?
A structured order is made by a court, often without the agreement of the parties. The outcome is similar to a structured settlement, as compensation will be paid to you in the form of tax-free periodic payments. A structured order must satisfy the same conditions that structured settlements require to be tax- free.
When can I get a structured settlement?
You can only arrange a structured settlement before your personal injury case has settled. It is not possible to arrange a structured settlement after you have settled your case or if a court has given final judgment for a lump sum.
Other conditions
You can get a structured settlement if the following conditions are met: the compensation or damages are for your personal injury. The claim for compensation cannot arise out of the death of another person the claim is made by you or your legal personal representative your claim is based on a wrong done to you or a right that you have under law (for example, medical negligence, sporting accidents, motor accidents, public liability and product liability) the claim is not a workers' compensation type claim the settlement is a written agreement
some or all of the compensation or damages is used by the defendant or their insurer to purchase one or more annuities to be paid to you or your legal personal representative.
What are the components of a structured settlement?
There can be several components of a structured settlement. These components must satisfy certain conditions to be eligible for the tax exemption.
