Private ruling: Compensation - settlement - defamation
Date of advice: 2 October 2020
Published: November 2020
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is any part of the settlement payment included in your assessable income? | A1: No. The settlement payment is capital in nature and is not ordinary income. Also, any capital gain you made is disregarded. As such, no part of the Settlement Sum is included in your assessable income. Additional information As the advantage sought by the legal action is of a capital nature the legal costs you incurred in relation to your claim are also capital in nature and therefore not deductible under section 8-1 of the Income Tax Assessment Act 1997.

Relevant facts and circumstances: You were employed. Statements were published about you by other employees. You commenced legal proceedings against those employees alleging that the statements were defamatory. You lodged a statement of claim seeking compensation for an unspecified amount for damages, costs and interest. The parties agreed to compromise the claim and settle the proceedings under the terms of a Deed of Settlement and Release (Deed). In accordance with the terms of the Deed you received a settlement payment.

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