Private ruling: Compensation
Date of advice: 11 October 2021
Published: December 2021
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the amount identified as interest form part of your assessable income? | A1: Yes. Any amount that is in the nature of interest received in addition to the base compensation amount, is ordinary income and will need to be included in your tax return in the year it is received. | Q2: Is the remainder of the compensation payment subject to the capital gains tax provisions? | A2: Yes. The remainder of the compensation payment is not regarded as ordinary income. This amount is capital in nature and subject to the capital gains tax provisions. | Q3: Will you need to include the remainder of the compensation payment in your income tax return? | A3: No. In your case any capital gain made will be disregarded under section 118-305 of the Income Tax Assessment Act 1997 . Also, the portion of the compensation that is a reimbursement of the adviser contribution fee is not an assessable recoupment as you did not claim a tax deduction for the fee.

Relevant facts and circumstances: You received a letter from a financial institution advising you the financial advice received in relation to your superannuation product was potentially inappropriate and offered a compensation payment. In the 20XX-XX income year you accepted the offer of a compensation payment which included an amount for interest and a reimbursement of the adviser contribution fee. You did not claim a tax deduction for the adviser contribution fee.

Relevant legislative provisions: Income Tax Assessment Act 1997 - section 6-5 | Income Tax Assessment Act 1997 - section 20-20 | Income Tax Assessment Act 1997 - section 102-5 | Income Tax Assessment Act 1997 - section 118-305