Private ruling: Compensation payment
Date of advice: 3 June 2026
Published: 17 August 2026
Ruling period: Period ending DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Will the net balance of the "Settlement Sum" that is yet to be paid to you as an undissected lump sum under the Deed of Settlement and Release be capital proceeds from CGT event C2 under section 104-25 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Taxation Ruling TR 95/35 Income tax: capital gains: treatment of compensation receipts provides the Commissioner's view on the CGT consequences for recipients of compensation amounts received. Paragraph 11 of TR 95/35 states that if the amount of compensation is not received in respect of any underlying asset, the amount relates to the disposal by the taxpayer of the right to seek compensation. Under paragraph 18 it advises that if the amount received is an undissected lump sum, the whole amount is treated as being consideration received on the disposal of the right to seek compensation. The residual amount of the settlement sum will be paid to you in an undissected lump sum, not broken into its individual components. It is payable under the Deed of Settlement and Release where you have agreed to the release, discharge, satisfaction, or surrender of your right to seek further compensation from the employer. | Q2: If the answer to question 1 is yes, is the capital gain made from the happening of such CGT event C2 a discount capital gain under section 115-5 of the ITAA 1997? | A2: Yes. The right to seek compensation is a right arising at law. It is clarified and enforced under the workplace agreements in place and held to account under the Fair Work Act 2009. The right to seek compensation is an asset for CGT purposes. When a taxpayer surrenders or disposes of that right, any payment received in compensation for that disposal is a capital gain. The right to seek compensation is acquired at the time of the compensable wrong or injury and you disposed of this right in the signing of the Deed of Settlement and Release. As the two events are more than 12 months apart, the capital component of the Settlement Sum, is a discounted capital gain under section 115-5 of the ITAA 1997. You are eligible for the 50% discount of the capital gain.

Relevant facts and circumstances: You are an existing employee of Employer A. On DD MM YY you were part of a group of individuals who filed proceedings in the Federal Court of Australia against Employer A. The proceedings alleged contraventions of the two operating employment agreements you worked under as well as under the Fair Work Act 2009. The claims made by you in both the Fair work Commission and the Federal Court were in respect of underpaid wages, non-credited time off in lieu (TOIL), legal costs, penalties, and interest. Some parts of the claims were admitted by Employer A. On DD MM YY Employer A provided their calculations of the admitted underpaid wages and non-credited TOIL. On DD MM YYY they paid you the amount of $X of underpaid wages. On DD MM YY they credited you with the non-credited TOIL to an amount of X hours, with a monetary value of $X. On DD MM YY the parties also reached a preliminary agreement for Employer A to settle all claims made. This was formalised into a Heads of Agreement. Under this agreement Employer A agreed to pay a settlement amount of $X less applicable taxes to all parties to discharge your claims. This included the amount already paid for unpaid wages and TOIL. On DD MM YY this settlement was formalised under the Deed of Settlement and Release. At the time of issue for this notice of decision, your share of the residual settlement sum has not yet been paid to you.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 104-25(1) | Income Tax Assessment Act 1997 subsection 104-25(2) | Income Tax Assessment Act 1997 subsection 108-5(1)(b) | Income Tax Assessment Act 1997 subsection 115-5