Private ruling: Compensation
Date of advice: 13 October 2021
Published: December 2021
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the lump sum compensation payment assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. The lump sum compensation payment does not have the characteristics of ordinary income. Rather, the payment is considered to be capital in nature and subject to the capital gains tax provisions. | Q2: Will you need to include the lump sum compensation payment in your income tax return? | A2: No. In your case any capital gain made will be disregarded under section 118-305 of the ITAA 1997.

Relevant facts and circumstances: A number of years ago you received inappropriate advice from a financial institution to transfer from your existing retirement scheme to one of their retirement schemes. As a result, the value of your retirement benefits was less than if you had remained in your existing retirement scheme. In the 20XX-XX income year you accepted the offer of a lump sum compensation payment from the financial institution.

Relevant legislative provisions: Income Tax Assessment Act 1997 - section 6-5 | Income Tax Assessment Act 1997 - section 102-5 | Income Tax Assessment Act 1997 - section 118-305