Private ruling: Compensation payment
Date of advice: 20 July 2023
Published: 11 September 2023
Ruling period: Income year ended 20 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1:  | A1: The payment ( the Payment ) does not have the characteristics of ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), such as being relied upon, regular or repeated payments, it was not a payment for any service you had performed, or for any investment. Rather it is capital in nature and consequently subject to the capital gains tax (CGT) provisions contained in Parts 3-1 and 3-3 of the ITAA 1997. | Q2:  | A2: 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 your case, it is considered that the Payment you received was in relation to such a right, being a right to provide you with the present value of the superannuation entitlement that you lost as a result of the actions of the advisor. Therefore, you can disregard any capital gain or loss made in relation to receiving the Payment.

Relevant facts and circumstances: You had a superannuation account (the Superannuation account). You were insured through the Superannuation account under a group life policy (the Insurance policy). You received advice from an advisor of Company X in relation to the Superannuation account. You did not personally pay any amount to the advisor at the time the advice was provided. After a period of time, the Insurance policy was cancelled. A review of the advice that you had received from the advisor was undertaken by Company X. You entered into a Deed of Release to receive a payment which included the following: • The parties included Company X and you • When you received the advice, you had insurance coverage for death and total and permanent disability • The insurance coverage had been cancelled by the advisor • You suffer from health issues which was accepted may now, or in the future, have resulted in the benefits being paid to you under the Insurance policy if the insurance cover; and • It was agreed that you would receive a specified amount ( the Payment ) and that you would release Company X from all claims. You received the Payment during the ruling period.

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 108-5 | Income Tax Assessment Act 1997 section 118-305


Subject: Compensation payment: Question 1 : Is the payment of $1,189,542 subject to capital gains tax? | Question 2 : Will the capital gains tax exemption under section 118-305 of the ITAA 1997 apply to the Payment?