ATO Interpretative Decision

ATO ID 2002/385

Income Tax

Capital gains tax: CGT event H2: ex-gratia lump sum payment
FOI status: may be released
Status of this decision: Decision Current

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Will the taxpayer make a capital gain or capital loss under section 104-155 of the Income Tax Assessment Act 1997 (ITAA 1997) on receipt of an ex-gratia lump sum payment from a foreign government?


No. The taxpayer will not make a capital gain or capital loss under section 104-155 of the ITAA 1997 on receipt of the ex-gratia payment. As the taxpayer does not own a relevant CGT asset in relation to which an act, transaction or event has occurred, CGT event H2 in section 104-155 of the ITAA 1997 does not happen to the taxpayer.


The taxpayer is a resident of Australia for tax purposes.

The taxpayer served in the merchant navy of a foreign country during World War II.

The taxpayer received an ex gratia lump sum payment from the foreign government. The lump sum payment is tax-free in the foreign country.

Members of the armed forces of the foreign country were entitled to significant benefits after the war. The taxpayer was not entitled to these benefits.

The lump sum received from the foreign government was paid in recognition that significant benefits of war were not available to the taxpayer.

The amount of the payment depended on the length of the taxpayer's service in the merchant navy.

Reasons for Decision

Under section 102-25 of the ITAA 1997, CGT event H2 is relevant if no other CGT event applies to a particular transaction. In this case the only other CGT event that might be relevant is CGT event C2. It is not relevant here because it is not considered that the taxpayer had any rights against the foreign government that ended on the making of the payment.

CGT event H2 will happen if an act, transaction or event occurs in relation to a CGT asset that you own, and the act, transaction or event does not result in an adjustment being made to the asset's cost base or reduced cost base (subsection 104-155(1) of the ITAA 1997).

A taxpayer will make a capital gain from CGT event H2 if the capital proceeds are more than the incidental costs incurred that relate to the event. A taxpayer will make a capital loss if those capital proceeds are less (subsection 104-155(3) of the ITAA 1997).

Section 108-5 of the ITAA 1997 provides that a CGT asset is any kind of property or a legal or equitable right that is not property.

It is considered that in this situation, the taxpayer did not own a relevant CGT asset. The foreign government did not create any rights in the taxpayer which were enforceable against the foreign government if they did not make the lump sum payment to the taxpayer.

As the receipt of the ex-gratia payment is not in respect of any act, transaction or even in relation to a CGT asset the taxpayer owns, CGT event H2 will not happen.

Amendment History

Date of amendment Part Comment
23 May 2014 Facts Updated for clarity.
Reason for decision Updated for clarity.

Date of decision:  20 September 2001

Year of income:  Year ended 30 June 2001

Legislative References:

Income Tax Assessment Act 1997

   section 102-25
   section 104-155
   subsection 104-155(1)
   subsection 104-155(3)
   section 108-5

Related ATO Interpretative Decisions
ATO ID 2002/384

Capital gains tax
CGT events H1-H2 - special capital receipts
CGT assets

Date of publication:  28 March 2002

ISSN: 1445-2782

  Date: Version:
  20 September 2001 Original statement  
You are here 23 May 2014 Updated statement