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Edited version of your private ruling
Authorisation Number: 1052013399812
Date of advice: 21 September 2022
Ruling
Subject: CGT - compensation
Question 1
Is any part of the compensation you received included in your assessable income under section 6-5 of the ITAA 1997?
Answer
No. The compensation payments you received do not give rise to income according to ordinary concepts or to a profit arising from a profit-making undertaking or plan pursuant to section 6-5 of the ITAA 1997.
Question 2
Did a Capital Gains Tax (CGT) event happen due to you receiving the compensation payment relating to the Property Diminution?
Answer
No. As you did not dispose of all or part of the affected land there are no CGT consequences at the time of entering into the Class Action settlement or receiving the compensation payments. If the compensation is in relation to pre-CGT land, there are no CGT consequences for you. Any post-CGT land's acquisition cost will be reduced by the compensation payments received in relation to that land. That is, the cost base of the post-CGT land will be reduced by the compensation payments and any gain or loss will crystallise at a later time when the post-CGT land is disposed of.
Question 3
Did a CGT event happen due to you receiving the compensation payment relating to Inconvenience, distress and vexation?
Answer
Yes. A CGT asset includes a legal or equitable right that is not property: paragraph 108-5(1)(b) of the ITAA 1997. The CGT asset in this case is the right to seek compensation for the inconvenience, distress and vexation. CGT event C2 happens when an intangible CGT asset is surrendered, cancelled or forfeited or similarly ends: section 104-25 of the ITAA 1997. In this case, the right ended when the Federal Court accepted the terms of the settlement and the payment was made.
Question 4
Is any capital gain or loss you make due to receiving the compensation payment relating to Inconvenience, distress and vexation disregarded?
Answer
Yes. A capital gain or loss is disregarded if it is made from a CGT event relating to compensation for any personal wrong, injury or illness suffered by a taxpayer or their relative: paragraph 118-37(1)(b) 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 have received compensation from XXXX whereby XXXX was ordered to pay compensation for the contamination of land and ground water.
The compensation paid to you was in two parts:
1. Property diminution
2. Inconvenience, distress and vexation.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 104-25
Income Tax Assessment Act 1997 Subparagraph 108-5(1)(b)
Income Tax Assessment Act 1997 Subparagraph 118-37(1)(b)