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Edited version of your written advice
Authorisation Number: 1051522702184
Date of advice: 27 May 2019
Ruling
Subject: Settlement payment
Question
Is the settlement payment that you received from a negligence claim exempt from income tax?
Answer
Yes. The settlement sum relates to the personal wrong and injury you suffered which was the subject of your negligence claim against your solicitor. The payment is exempt from capital gains tax under subsection 118-37(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Therefore, no part of the compensation amount is required to be included in your assessable income.
As the settlement money is not assessable income, you are not entitled to claim for the legal expenses you incurred.
This ruling applies for the following period:
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
The scheme commences on:
1 July 2018
Relevant facts and circumstances
You suffered an injury from an accident.
You sought legal assistance to submit your personal injury claim. However, your solicitor failed to lodge the application.
You approached another solicitor who advised that your claim has lapsed the statutory limitation period. You were also advised that you can sue the first solicitor for negligence.
You were successful in the negligence claim. You signed a deed of release and you will receive an amount to be paid in yearly instalments.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-25
Income Tax Assessment Act 1997 paragraph 118-37(1)