Private ruling: Deceased estates - lump sum
Date of advice: 27 October 2025
Published: 15 December 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: Will the interest component of the lump sum payment from Company A be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the compensation amounts of the lump sum payment from Company A be assessable as statutory income in the form of a net capital gain under section 102-5 of the ITAA 1997? | A2: Yes. | Q3: If an amount is assessable under question 2, will the capital gains tax general discount be allowed in determining the amount of the assessable net capital gain? | A3: Yes. | Q4: Are you as trustee of the estate assessed on assessable amounts arising under questions 1 & 2? | A4: No.

Relevant facts and circumstances: On XX XXXX 20XX, the deceased passed. At the time of his death the deceased held investments that were placed because of advice received by advisor A, a former authorised representative of Company A. There were 3 investments (the investments) as follows: • Investment A. • Investment B. • Investment C. Under the deceased's Will after payment of all debts, funeral and testamentary expense from the residue of their estate devolved to their siblings in equal shares or, should they predecease them, to their lawful issue in equal shares as tenants in common if more than one. On XX XXXX 20XX, probate was granted to you, and you were appointed trustees by the Supreme Court. In the 20XX income year, the investments were all cashed out and the administration of the estate was finalised. On XX XXXX 20XX, you received a letter from Company A advising you that a review had been conducted of the advice provided to you and the deceased between XX XXXX 20XX to XX XXXX 20XX and that certain advice provided may not have been appropriate for the deceased's goals, needs and personal circumstances at the time. Under the letter, Company A offered you a total compensation amount of $XX (the offer). The compensation amount was dissected down to: Investment A • Compensation amount of $XX. • Compensatory interest of $XX. Investment B • Compensation amount of $XX. • Compensatory interest of $XX. Investment C • Compensation amount of $XX. • Compensatory interest of $XX. Ongoing advisor fees • Refund amount of $XX. • Compensatory interest of $XX. You have previously claimed a deduction for the advisor fees and will include the refund of $XX as assessable income. You accepted the offer. On XX XXXX 20XX, you received payment of the offer in a single lump sum to the trust account. All beneficiaries of the estate are Australian tax residents.

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 104-25 | Income Tax Assessment Act 1997 section 104-35 | Income Tax Assessment Act 1997 subsection 108-5(1)(b) | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 Division 115

Reasons for decision: Summary: Yes. In your case, you have received compensation due to inappropriate financial advice provided to you and the deceased by Company A. An amount is separately identified as interest. Therefore, this amount is assessable as ordinary income in the year of receipt under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Interest: Taxation Ruling TR 95/35 Income tax: capital gains: treatment of compensation receipts , applies to a person who receives an amount as compensation. It considers the capital gains tax (CGT) consequences for the recipient of the amount, and whether the amount should be included in the assessable income of the recipient. Paragraphs 26, 237, 238 and 246 of TR 95/35 deals with the treatment of interest awarded as a part of a compensation amount. It states: 26. Interest awarded as part of a compensation amount is assessable income of the taxpayer under the general income provisions. If the taxpayer receives an undissected lump sum compensation amount and the interest cannot be separately identified and segregated out of that receipt, no part of that receipt can be said to represent interest. 237. Interest has been described as 'payment by time for the use of money' (Rowlatt J in Bennett v. Ogston (1930) 15 TC 374 at 379). In economic terms, interest is the return or compensation for the use or retention by one person of a sum of money belonging or owed to another. Court rules allow the Court to include in compensation interest on the whole or part of the amount for the whole or part of the period to which the judgment relates. 238. Any interest awarded as part of compensation is interest within the general meaning of that term. It represents assessable income of the taxpayer even when the judgment provides only for a single lump sum which would otherwise be a capital receipt ( Federal Wharf Co Ltd v. DFC of T (1930) 44 CLR 24; 1 ATD 70 and Riches v. Westminster Bank Ltd [1947] AC 390). 246. It is a question of fact to be determined in each case whether any part of the compensation received by a taxpayer is in the nature of interest. We consider that any amount which is in the nature of interest, and which can be identified as interest, and whether paid as part of the compensation or separately, constitutes assessable income of the taxpayer under the general income provisions. In your case, you have received compensation due to inappropriate financial advice provided to you and the deceased by Company A. An amount is separately identified as interest. Therefore, this amount is assessable as ordinary income in the year of receipt under section 6-5 of the ITAA 1997. | Summary: Yes. In your case, the right to seek compensation is an intangible CGT asset and your ownership of that asset ended when you accepted the compensation payment to settle your claim. As a result of the actions of your financial advisor, there was a reduction in the value of the deceased's investments. At that time, CGT event C2 happened. The right to compensation lay with you and the amounts paid to you as compensation are in satisfaction of your right to seek compensation. In your case, this component is capital proceeds for your CGT event C2. The net capital gain from CGT event C2 will be assessable in the relevant year under section 102-5 of the ITAA 1997. | Detailed Reasoning - Compensatory amounts: Section 6-5 of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). Based on case law, it can be said that ordinary income generally includes receipts that: • are periodical, regular or recurrent; • are relied upon by the recipient for their regular expenditure and paid to them for that purpose; and • are amounts that are the product in a real sense of any employment of, or services rendered by, the recipient. The payment that you received is in respect of a review conducted by Company A, had been conducted of the advice provided to you and the deceased between XX XXXX 20XX to XX XXXX 20XX and that certain advice provided may not have been appropriate for the deceased's goals, needs and personal circumstances at the time. The payment was not earned by you as it does not relate to services performed. The payment is also a one-off payment and thus it does not have an element of recurrence or regularity. Although the payment can be said to be expected, and perhaps relied upon, this expectation does not arise from a relationship to personal services performed. Accordingly, the compensation payment is not ordinary income and is therefore not assessable under section 6-5 of the ITAA 1997. Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income. Capital gains are included as assessable income under section 102-5 of the ITAA 1997. | Detailed Reasoning - Capital gains: Paragraph 108-5(1)(b) of the ITAA 1997, specifically includes a legal or equitable right within the definition of a CGT asset. A taxpayer's right to seek compensation is therefore classified as an intangible CGT asset. When an individual receives a compensation amount, there are CGT consequences. Under section 104-35 of the ITAA 1997, a CGT event D1 happens when the taxpayer suffers the wrong and a right to seek compensation is created. Under section 104-25 of the ITAA 1997, CGT event C2 happens when the right comes to an end. The amount of compensation received by the individual is all or part of the capital proceeds for the ending of the right. As the right has no or a limited cost base, there will be a capital gain for the individual. | Detailed Reasoning - Application to your circumstances: In your case, the right to seek compensation is an intangible CGT asset and your ownership of that asset ended when you accepted the compensation payment to settle your claim. As a result of the actions of your financial advisor, there was a reduction in the value of the deceased's investments. At that time, CGT event C2 happened. The right to compensation lay with you and the amounts paid to you as compensation are in satisfaction of your right to seek compensation. In your case, this component is capital proceeds for your CGT event C2. The net capital gain from CGT event C2 will be assessable in the relevant year under section 102-5 of the ITAA 1997. | Summary: Yes. You have satisfied the requirements of division 115 of the ITAA 1997 and are entitled to the 50% CGT discount. | Detailed Reasoning - Discount capital gains: Division 115 of the ITAA 1997 provides the conditions for a discount capital gain. You make a discount capital gain if the following requirements are satisfied: • you are an individual • a CGT event happens to a CGT asset of yours after 11:45am (by legal time in the Australian Capital Territory) on 21 September 1999 • you acquired the CGT asset at least 12 months before the CGT event, and • you do not choose to use the indexation method. You could count an asset's previous ownership towards your 12-month ownership period if you acquired it through a deceased estate, if the asset was acquired by the deceased on or after 20 September 1985. For Australian resident individuals the discount percentage is 50%. In your case, you meet all of the above conditions and therefore are entitled to reduce a capital gain if made, by 50% using the discount method under Division 115. | Summary: No. The beneficiaries will be assessed on the amounts arising under questions 1 and 2. | Detailed Reasoning - Detailed reasoning: Taxation Ruling IT 2622 Income tax: present entitlement during the stages of administration of deceased estates , considers the income tax liabilities of executors or administrators and of beneficiaries under the estates of deceased persons during the stages of administration of deceased estates. IT 2622 confirms that the beneficiaries of a deceased estate become beneficial owners of the assets of the deceased after the estate is fully administered. In your circumstances, the estate was fully administered in the 20XX income year and the beneficiaries were absolutely entitled. The beneficiaries will be assessed on the amounts arising under questions 1 and 2.