Private ruling: Lump sum - past and future economic loss
Date of advice: 28 July 2021
Published: October 2021
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the amount awarded to you for special damages capital in nature and therefore not assessable as ordinary income? | A1: Yes. Payments which substitute for income have been held by the courts to be income under ordinary concepts. However, no component of the amount received was to compensate for loss of income. The payment related to past and future economic loss which is compensation for loss of earning capacity (a capital asset) rather than for actual loss of income. Therefore, the payment is not assessable as ordinary income. | Q2: Is any capital gain disregarded under section 118-37 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes. Section 118-37 of the ITAA 1997 provides an exemption for compensation received for any wrong, injury or illness you or your relative suffers personally. Defamation is considered a wrong that you suffer personally. Consequently, any capital gain will be exempted under section 118-37 of the ITAA 1997.

Relevant facts and circumstances: You were the respondent in an appeal from the decision of a primary Trial Judge in a court case (Trial). The Trial arose from an action taken by you for defamatory imputations arising from a number of publications by the defendants. In the Appeal, the Court upheld the decision of the trial judge, and the award of damages made by the Trial judge in your favour. The Trial Judge awarded special damages to you for past economic loss and future economic loss. Your claim in regards to the special damages was for financial loss arising from a loss of earning capacity caused by the defamation. It was recognised by the Court that you suffered economic loss by reason of the defamatory publications.

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


This ruling applies for the following period: