Private ruling: Lump sum settlement amount
Date of advice: 26 September 2025
Published: 24 November 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the amount you received as compensation from Company Z subject to tax? | A1: No. Based on the information provided to the Commissioner the payment is not subject to tax. The payment does not meet the definition of ordinary income and is therefore not taxed under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). It is also not subject to capital Gains tax (CGT) as section 118-37 of the ITAA 1997 exempts CGT from applying on the basis you received compensation or damages for a wrong you suffered.

Relevant facts and circumstances: You purchased a smart watch from Company Z. The watch was faulty, and you returned the watch to Company Z. A stranger contacted you with videos and photos that were on your watch that should have been erased by Company Z. You informed Company Z of the privacy data breach. You signed a Deed of Settlement and Release between Company Z and yourself. Company Z wished to resolve the matter and acknowledge the impact of the Privacy Data Breach on you and offered to make a one-off goodwill payment. Under the Deed, Company Z agreed to permanently delete all personal data from the watch. Company Z was to provide you with written confirmation once the deletion of personal data had been completed. You are not affiliated with Company Z under any type of employment contract.

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