Private ruling: Settlement payment and legal expenses
Date of advice: 20 August 2020
Published: October 2020
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is any part of the lump sum payment included in your assessable income? | A1: No. You have been compensated for your injury. The lump sum payment is capital in nature and not ordinary income. Also, any capital gain you made is disregarded. As such, no part of the lump sum payment is included in your assessable income. | Q2: Are you entitled to a deduction for legal expenses? | A2: No. The lump sum payment is capital in nature and not included in your assessable income. Your legal expenses incurred to receive the lump sum payment are also capital in nature. As such, you are not entitled to a deduction for your legal expenses.

Relevant facts and circumstances: You operated a sole trader business. In 20XX you were engaged to provide services at a complex owned by a local council. You were injured while providing those services. You engaged a solicitor and commenced legal proceedings against the council, seeking relief for damages, interest and legal costs. By way of settlement you received a lump sum payment in 20XX. Legal fees were deducted from the payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 118-37