Private ruling: Settlement payment deduction
Published: June 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for any part of the settlement sum you paid your former employer? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Taxation Assessment Act 1997 allows a deduction for all losses and outgoings to the extent they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. As the result of the action you took against your employer and their counter claim, you agreed to settle on an amount which you were required to pay to your former employer. The amount was net of any amount you may have expected to receive for bonuses. That is, the amount you paid related to a breach of your employment agreement with your former employer and as such, as stated in our previous private ruling, the full amount is considered to be capital in nature.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You were an employee of a financial advisory firm before 2006. | It was a term and condition of the Agreement, between you and your employer, that you would be paid a performance-based bonus every three months. | You resigned from your position and commenced employment at another financial services firm. | At the time of your resignation you were contractually entitled to a quarterly bonus payment for the quarter ended 30 June 2008. | Bonus payments are typically paid between one to three months after the end of each quarter. | You received correspondence from your employer stating your would be paid the outstanding bonus statement. | You contacted your employer when you did not receive the bonus payment. | You had a meeting with your former employer and as no agreement could be reached you commenced legal action. | Your previous employer issued and distributed a defamatory letter about your actions and behaviour throughout and after your employment with them. | You lodged a defamation claim in the Supreme Court. | Your former employer lodged a counter claim seeking damages for breaches of employment contract. | An out of court settlement was reached whereby you were required to pay your former employer an amount of $X.