Private ruling: Capital payment - compensation
Date of advice: 15 June 2022
Published: September 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the payment that is capital in nature exempt under section 118-37 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The payments you received are legal compensation related to a CGT event C2 and are therefore considered capital receipts, with any resulting capital gain made from the event ordinarily assessed under the capital gains tax provisions. However, as the payments relate to compensation received for personal injury suffered by you, any capital gain made from the receipt of monies will be disregarded under section 118-37 of the ITAA 1997. As the compensation amount you receive is not assessable as either ordinary income or statutory income, no part of it is included in your assessable income.

Relevant facts and circumstances: You worked for a business. Your partner also worked at the same business. Your partner left the business to accept employment at another business. Your partner notified the business of their intention to leave and was asked to leave immediately. After this occurred the way you were treated by the management of the business became hostile and was considered as bullying or aggressive in nature. Due to this treatment, you developed a medical condition for which you were required to seek medical attention and necessitated taking leave for recovery. You eventually resigned from your position and sought legal advice in relation to the treatment from your employer. As a result of the legal advice the employer agreed to compensate you via settlement payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 118-37