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Edited version of private ruling

Authorisation Number: 1011868237826

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Ruling

Subject: Lump sum payment assessable under the capital gains tax (CGT) provisions

Question 1

Is any part of your lump sum payment assessable as ordinary income?

Answer

No.

Question 2

Is any part of your lump sum payment assessable under the capital gains tax (CGT) provisions?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You lodged a complaint with the Equal Opportunity Commission (EOC) against another party for spouse or partner's identity discrimination. Your complaint was accepted.

Following a conciliation meeting, it was agreed that the matter would be settled without proceeding to a tribunal hearing.

You signed a Deed of Settlement and Release (the deed) where it was agreed that you would receive a lump sum amount, subject to you filling a notice of discontinuance with the EOC.

You have received the agreed amount as set out in the deed.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)

Reasons for decision

Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

The lump sum payment you accepted is not income from rendering personal services, income from property or income from carrying on a business.

The payment is also not earned, expected, relied upon and is a one off payment and thus it does not have an element of recurrence or regularity.

The lump sum payment is not considered to be ordinary income.

Capital gains tax

Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(b) of the ITAA 1997 disregards payment or receipts for capital gains purposes where the amount relates to compensation or damages a person receives for any personal wrong, injury or illness. The lump sum you received is considered to be exempt from CGT under paragraph 118-37(1)(b).

Conclusion

As the amount is not ordinary or statutory income it is not assessable income. Therefore no part of the settlement amount is required to be included in your income tax return.

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