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Edited version of private advice
Authorisation Number: 1051600831055
Date of advice: 30 October 2019
Ruling
Subject: Income tax - compensation payment
Question
Is the lump sum compensation payment that you received for pain and suffering arising from participation in a clinical trial included in your assessable income?
Answer
No.
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). You received a compensation payment that is not income from rendering personal services, income from property or income from carrying on a business. The payment is a one-off payment and does not have an element of recurrence or regularity. Accordingly, the lump sum payment is not ordinary income and is therefore not assessable under section 6-5 of the ITAA 1997 in the 2018-19 financial year.
Question
Is the lump sum compensation payment that you received for pain and suffering arising from participation in a clinical trial subject to capital gains tax?
Answer
No.
Paragraph 118-37(1)(a)(ii) of the ITAA 1997 disregards a capital gain made where the amount relates to compensation or damages you receive for any wrong, injury or illness you suffer personally. Accordingly, the compensation payment you received is not assessable under section 6-10 of the ITAA 1997.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You participated in a medical clinical trial.
You were advised to cease participation in the trial due to a medical condition.
You negotiated a settlement with the company conducting the trial for your pain and suffering.
The settlement form states that your acceptance of the offer is in full and final settlement of all claims and complaints against the payee in connection with the clinical trial.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-10