Private ruling: Assessability of Compensation
Published: June 2014
Ruling period: 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the disposal of the right to seek compensation by the Corporate Trustee for the Superannuation Fund when it accepts the settlement offer trigger a capital event? | A1: Yes | Q2: Was the asset acquired on the date that a complaint was lodged with the Financial Ombudsman Service? | A2: Yes

Relevant facts and circumstances: The A Superannuation Fund (The Fund) lodged a complaint with the Financial Ombudsman Service (FOS). The Fund's former financial adviser was found not to have provided appropriate financial advice in relation to the Fund's risk profile and asset allocation. Through the mediation process, a compensation payment from the Fund's former financial adviser was awarded for losses incurred during the service period. The superfund is a Self-Managed Super Fund with one member and a corporate trustee. The sole member of the SMSF is the director of the corporate trustee. You have supplied a copy of the deed of settlement.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-25 | Income Tax Assessment Act 1997 Section 118-305(1)(b)

Reasons for decision: Summary: CGT event C2 will trigger on the entering of a deed of settlement and no exemption is available to the Funds Trustee. | Detailed Reasoning - CGT event C2 and timing: CGT event C2 section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997) happens if your ownership of an intangible assets ends by the asset for example being: • redeemed or cancelled, • released, discharged or satisfied, • abandoned, surrendered or forfeited. The time of the event is when you enter into the contract that results in the asset ending, or if there is no contract when the asset ends. The date of acquisition follows the general acquisition rules in section 109-5 of the ITAA 1997 and is the day that you become the owner of the asset. In your case, the right to seek compensation is an intangible CGT asset of the Fund which arose for losses incurred during the service period, and resulted from the Fund's former financial adviser not providing appropriate financial advice in relation to the Fund's risk profile and asset allocation. The asset was acquired when you became aware that the advice caused you a loss and lodged a complaint with the Financial Ombudsman Service. The disposal of this Fund CGT asset (the right to seek compensation) will trigger CGT event C2 when the deed of settlement is entered into. | Detailed Reasoning - Exemption: Section 118-305(1)(b) of the ITAA 1997 states that a capital gain or capital loss is disregarded if you make it from a CGT event happening in relation to a right to an asset of such a fund. However, this exemption is not available if you are the trustee of the fund and a CGT event happens in relation to a CGT asset of the fund. In your case, you are the trustee of the fund and a CGT event arising from the settlement is in relation to a CGT asset of fund and as such will not find exemption under section 118-305(1)(b).