Private ruling: Lump sum compensation payment
Date of advice: 25 March 2021
Published: May 2021
Ruling period: Financial year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did capital gains tax (CGT) event C2 happen when you executed the Deed of Settlement and Release? | A1: Yes. Having considered your circumstances and the relevant factors. A CGT event C2 happened when you executed the Deed of Settlement and Release and accepted the settlement sum. Your capital gain for the disposal of the right to seek compensation will be the difference between the capital proceeds you received as compensation and the cost base of the right to seek compensation. Further information about the CGT consequences for compensation can be found in Taxation Ruling 95/35 Income tax: capital gains: treatment of compensation receipts.

Relevant facts and circumstances: In October 20XX, you commenced proceedings in the Magistrates Court seeking the recovery of unpaid amounts from a Company. The Company filed a Defence and Counterclaim against you in June 20XX, seeking recovery of historical overpayments (the Proceedings). The parties agreed to resolve the Proceedings under the terms of a Deed of Settlement and Release in August 20XX. You have incurred legal expenses relating to both Proceedings. You have received a lump sum settlement amount in the 20XX-XX financial year.

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 104 - 25