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Edited version of your written advice
Authorisation Number: 1051508639962
Date of advice: 30 April 2019
Ruling
Subject: Compensation, right to seek compensation, CGT discount, GST
Question 1
Is the Compensation payment received assessable under the capital gains tax (CGT) provisions?
Answer 1
Yes, the amount you received relates to the disposal of your right to seek compensation. The right to seek compensation is the right of action arising at law or in equity on the occurrence of any breach of contract, personal injury or other compensable damage or injury and is an asset for CGT purposes.
Question 2
Does the 50% discount apply to the compensation payment?
Answer 2
Yes, in your case, you acquired the CGT asset (the right to seek compensation) when you commenced legal action and disposed of the right when you received the settlement amount over 12 months later. Consequently, you acquired the CGT asset at least 12 months prior to its disposal and are entitled to apply the 50% CGT discount to your capital gain as per section 115-25 of the Income Tax Assessment Act 1997 (ITAA 97).
Question 3
Does Goods and Service Tax (GST) apply to the amount received?
Answer 3
No. You have not made a taxable supply for consideration and in the course or furtherance of an enterprise you carry on as defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore GST does not apply to the amount received.
This ruling applies for the following period:
1 July 2018 to 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
In 20xx, a bushfire commenced in the region A affecting a number of properties.
The same year, you and the other plaintiffs (you) were part of a class action against Company A.
You alleged that they failed their duty of care to take reasonable precautions against harm to their person and properties from their operation. As a result the fire started and caused you to suffer damages.
You and Company A agreed to settle and the terms were set out in a confidential Deed of Settlement.
The terms of the Deed are, in summary:
● In consideration of payment of a confidential settlement sum, you release Company A from any claims made in the class action or arising out of the fire; and
● Company A does not admit any responsibility for or liability in relation to the events leading to the fire.
You provided details of the damages you suffered.
Your losses were not insured.
Over 12 months after the legal proceedings started, you received an undissected settlement payment.
Relevant legislative provisions
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 Part 3-3
Income Tax Assessment Act 1997 section 115-25
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 9-10
A New Tax System (Goods and Services Tax) Act 1999 section 9-15
A New Tax System (Goods and Services Tax) Act 1999 section 9-20