Private ruling: Compensation
Date of advice: 15 May 2026
Published: 20 July 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is the compensation payment under the Compensation Scheme of Last Resort (CSLR), or any part of it, assessable as ordinary income? | A1: No. In your case, the compensation payment you received under the CSLR was less than the principal amount of compensation that you were awarded by the AFCA for the loss in value in your superannuation accounts. None of the capped compensation amount received has the character or ordinary income. Consequently, the lump sum compensation amount paid under the CSLR is not assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). | Q2: Is the compensation payment subject to CGT? | A2: Yes. In your case, the receipt of the compensation payment was for inappropriate advice which resulted in a financial loss in your superannuation accounts. The amount paid to you was in satisfaction of the right to seek compensation and the relevant CGT asset is the disposal of the right to seek compensation. CGT event C2 happens if your ownership of an intangible CGT asset ends in certain ways, including being released or cancelled (subsection 104-25(1) of the ITAA 1997). In this case, the compensation lump sum payment under the CSLR are capital proceeds for your CGT C2 event. Your ownership of the intangible CGT asset ended when you accepted the compensation payment to settle your claim. | Q3: Will the exemption provided under section 118-305 of the ITAA 1997 apply? | A3: Yes. While the amount you received was not from a superannuation fund, it was received in relation to your interest in a superannuation fund. An exemption is provided under section 118-305 of the ITAA 1997 for any capital gain or loss made from a CGT event happening in relation to a right to an allowance, annuity or capital amount payable out of a superannuation fund or an asset of a superannuation fund. In this case, it is considered that the compensation received was in relation to such a right and therefore any capital gain or loss is disregarded.

Relevant facts and circumstances: You held accumulation and pension superannuation accounts, migrated to an alternate fund in early MM 20YY. You were a client of a financial advisory firm from MM 20YY until MM 20YY. The financial advisory firm provided advice for your investment portfolio held in your accumulation and pension superannuation accounts. On DD MM 20YY the financial advisory firm entered voluntary administration. You moved to a new financial advisory firm in MM 20YY. Following a review of your portfolio by the new financial advisory firm, the investments were sold in MM 20YY and the funds invested in alternative assets. Almost all the investments sold had been held in pension superannuation accounts. The superannuation accounts do not still own any investments from when you received inappropriate advice. In MM 20YY the AFCA issued a determination. You were awarded compensation in the amount of $X calculated from DD MM 20YY to DD MM 20YY plus interest for the period from DD MM 20YY to the payment date. The compensation amount was calculated by the AFCA by comparing the actual portfolio value to a hypothetical portfolio had appropriate advice had been received. Interest was calculated on the AFCA determination amount equivalent to the change in the Australian Consumer Price Index from DD MM 20YY to the payment date. You did not receive any compensation from your original financial advisory firm. On DD MM 20YY you submitted a claim to the CSLR. The CSLA offers compensation payments where complainants have been unable to obtain compensation from the financial advisory firm. Compensation payments from the CSLR are capped at $X per individual. On DD MM 20YY, you received a letter from the CSLR confirming your acceptance of their offer for an amount of compensation of $X and advising the determination amount and an interest component as follows: $X - AFCA determination amount $X - Interest component calculated on the AFCA determination amount The interest component was calculated for period DD MM 20YY to DD MM 20YY. The interest amount paid by CSLR would be further increased between the letter date and payment date. $X - Total capped compensation amount The capped figure was less than the AFCA determination amount. You accepted this offer and the capped compensation amount of $X was paid directly to your personal bank account on DD MM 20YY.

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 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 118-305