Private ruling: Settlement proceeds
Date of advice: 17 July 2024
Published: 26 August 2024
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the proceeds of the settlement be included in your assessable income? | A1: No. Based on the information provided to the Commissioner, the acceptance of the settlement amount will not be assessable to you in your individual capacities as the Trust will receive the settlement payment. Further, the settlement amount will be of a capital nature. | Q2: Will acceptance of the settlement amount trigger a CGT event for you? | A2: No. Based on the information provided to the Commissioner, acceptance of the settlement will trigger a CGT event for the Trust and will not result in a CGT event for you.

Relevant facts and circumstances: The Trustees of the Trust are considering settlement of legal action taken against conveyancers for negligent advice given about the transfer of a property to the Trust. The advice given by the conveyancers was that the property transfer would be exempt from Transfer Duty under certain relief provisions. This advice was given via e-mail prior to the property transfer. The advice was given to the trustees in their personal capacities, not in their capacity as trustees for the Trust, as the Trust had not yet been established at the time the advice was provided. The advice eventually proved to be incorrect, leading to Transfer Duty and interest being levied on the property transfer (against the Trust, not against the trustees). Furthermore, an additional surcharge was levied on the Transfer Duty and subsequent Land Tax because of the way the trust deed was written. As a consequence, the Trustees in their capacity as Trustees took out a loan against the property to pay the state revenue department the assessments levied against the Trust and to also pay legal fees. It has been agreed that the legal advice was negligent, and the conveyancer has proposed a settlement in the amount representing the payment of the Transfer Duty and related amounts.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 110-25