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Edited version of private advice
Authorisation Number: 1051903460145
Date of advice: 28 September 2021
Ruling
Subject: Compensation
Question 1
Does the amount identified as insurance premium compensation form part of your assessable income?
Answer
Yes. As you have claimed deductions for the insurance premiums, the amount you received as a refund or reimbursement will form part or your assessable income as an assessable recoupment and will need to be included in your return in the year it was received.
Question 2
Does the amount identified as interest form part of your assessable income?
Answer
Yes. Any amount that is in the nature of interest received in addition to the base compensation amount, is ordinary income and will need to be included in your return in the year it was received.
Question 3
Is the remainder of the compensation payment subject to the capital gains tax provisions?
Answer
Yes. The remainder of the compensation payment is not regarded as ordinary income. This amount is capital in nature and subject to the capital gains tax provisions.
Question 4
Will you need to include the remainder of the compensation payment in your income tax return?
Answer
No. In your case any capital gain made will be disregarded under section 118-305 of the Income Tax Assessment Act 1997.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
On XX/XX/20XX you received an offer from a financial institution to pay compensation for inappropriate advice received in relation to your superannuation product and insurance policy.
You have claimed deductions for the premiums of the insurance in the income years they were incurred.
In the 20XX income year you accepted the offer of a compensation payment which included an amount of interest and reimbursement of insurance premiums.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 20-20
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 102-5
Income Tax Assessment Act 1997 section 118-305