Private ruling: Capital Gains Tax
Published: June 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the settlement payment you received subject to taxation? | A1: No

Relevant facts and circumstances: You commenced full-time employment. You were not given the option to join a particular superannuation fund. That fund ceased taking new members several weeks after you commenced work. A class action for people who had not been given the option to join the fund but were eligible was initiated. The matter was settled. You received compensation. The settlement agreement contained no admission of liability.

Relevant legislative provisions: Section 104-25 of the Income Tax Assessment Act 1997 | Section 118-37 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Under section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997), Capital Gains Tax (CGT) event C2 happens if your ownership of an intangible CGT asset ends by the asset being abandoned, surrendered or forfeited. The time of the CGT event is when the contract that ends the asset is entered into, or if there is no contract, when the asset ends. Legal or equitable rights that are not property are CGT assets under section 108-5 of the ITAA 1997. A capital gain or loss made from a CGT event relating to compensation or damages you received for any wrong, injury or illness you suffer personally is disregarded under section 118-37 of the ITAA 1997. In your case, you had an intangible CGT asset in the form of a legal right to pursue compensation. A CGT event occurred when you entered a settlement agreement resulting from pursuing that legal right. You have made a capital gain from this event and it will be disregarded as it is compensation received for a wrong you suffered (regardless of liability not being accepted).