ATO Interpretative Decision

ATO ID 2002/65 (Withdrawn)

Income Tax

Deductions & expenses: Sum paid in settlement of a harassment and victimisation claim
FOI status: may be released

This decision is withdrawn as contains incomplete references and inadequate reasoning. It has been replaced by ATO ID 2002/663.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.

Issue

Is the sum paid in settlement of a harassment and victimisation claim deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No, the sum paid in settlement of a harassment and victimisation claim is not deductible under section 8-1 of the ITAA 1997 as the expense is of a capital or private nature.

Facts

The taxpayer is an employee. The duties of the taxpayer did not include advising other employees on the performance of their work.

Another employee lodged a complaint of sexual harassment and victimisation against the taxpayer with the relevant Government Authority.

The taxpayer denied the allegations made. The matter proceeded to the relevant Government Authority where it was resolved through a conciliation agreement.

The taxpayer agreed to pay a settlement amount for pain, suffering and cost. In exchange all parties agreed to take no further action.

Reasons for Decision

Section 8-1 of the ITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income and excludes losses or outgoings of a capital, private or domestic nature.

For the settlement sum to constitute an allowable deduction, it must be shown that it was incidental or relevant to the production of the taxpayer's assessable income, Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; 8 ATD 431; 4 AITR 236.

The main reason for the payment of the settlement amount was to ensure that no further action was taken. It was a single payment to obtain an enduring benefit (Sun Newspapers Ltd v. FC of T (1938) 61 CLR 337; (1938) 45 ALR 10; (1938) 1 AITR 403; 5 ATD 87). The payment was not incurred in the performance of the taxpayer's day to day activity by which the taxpayer derives assessable income (The Herald and Weekly Times Ltd v. FC of T (1932) 48 CLR 113; Inglis v. FCT 87 ATC 2037).

Therefore, as the payment was not incidental and relevant to the work which produced the taxpayer's assessable income, the expense is capital or private in nature and is not allowable as a deduction.

Date of decision: 17 December 2001

Year of income: Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
section 8-1

Case References:
Herald and Weekly Times v. FC of T
   (1932-33) 48 CLR 113
   39 ALR 46
   2 ATD 169

Inglis v. FC of T
87 ATC 2037

Sun Newspapers Ltd and Associated Newspapers Ltd v. FC of T
   61 CLR 337
   45 ALR 10
   (1938) 1 AITR 403
   5 ATD 87

Ronpibon Tin v. FC of T
8 ATD 431
78 CLR 47

Keywords
Negotiated settlements
Deductions & expenses
Legal expenses

Business Line: CoE - Capital Allowances

Date of publication: 24 January 2002

ISSN: 1445-2782

history

	Date:	Version:
	17 December 2001	Original statement
You are here	25 June 2002	Archived

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