You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1052004907200

Date of advice: 15 July 2022


Subject: Compensation - inappropriate advice

Question 1:

Does the interest component amount of the compensation payment form part of your assessable income?



Any amount that is in the nature of interest received in addition to the base compensation amount, is ordinary income and will need to be included in your return in the year it is received under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Therefore, the interest component of the compensation payment will be assessable to you in the income year you received it.

Question 2:

Is the remainder of the compensation payment subject to the capital gains tax provisions?



The remainder of the compensation payment is not regarded as ordinary income. This amount is capital in nature and is subject to the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

Question 3:

Will you need to include the remainder of the compensation payment in your income tax return?



In your case any capital gain made in relation to the remainder of the compensation payment will be disregarded under section 118-305 of the ITAA 1997.

This ruling applies for the following period:

Income year ended 30 June 20XX

Income year ending 30 June 20XX

The scheme commences on:

XX July 20XX.

Relevant facts and circumstances

Your relative, Person A, had a superannuation fund (the Superannuation Fund) through a financial institution (the Financial Institution).

Person A (the Deceased) passed away and you were appointed as the executor of the Deceased Estate and were the sole beneficiary.

The Superannuation Fund was wound up when the Deceased passed away.

The Deceased Estate has been wound up and you have liaised with the Financial Institution in relation to compensation for the inappropriate advice provided to Person A.

The Financial Institution conducted a review of financial advice provided to Person A in relation to the performance of their Superannuation Fund's investments, which sent you a letter of offer of compensation in your role as the Executor of the Deceased Estate to compensate for the financial loss of the Superannuation Fund's investments due to inappropriate advice provided by their representative.

You completed and submitted the 'Deed of Settlement and Release' in addition to providing the 'Payment Instruction Form' where you instructed the Financial Institution to deposit the compensation amount into your bank account.

You have received the compensation payment which included an amount of interest.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 118-305

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3