Edited version of private advice

Authorisation Number: 1051908494507

Date of advice: 11 October 2021

Ruling

Subject: Compensation

Question 1

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 tax return in the year it is received.

Question 2

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 3

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. Also, the portion of the compensation that is a reimbursement of the adviser contribution fee is not an assessable recoupment as you did not claim a tax deduction for the fee.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You received a letter from a financial institution advising you the financial advice received in relation to your superannuation product was potentially inappropriate and offered a compensation payment.

In the 20XX-XX income year you accepted the offer of a compensation payment which included an amount for interest and a reimbursement of the adviser contribution fee.

You did not claim a tax deduction for the adviser contribution fee.

Relevant legislative provisions

Income Tax Assessment Act 1997 - section 6-5

Income Tax Assessment Act 1997 - section 20-20

Income Tax Assessment Act 1997 - section 102-5

Income Tax Assessment Act 1997 - section 118-305