Edited version of private advice

Authorisation Number: 1052070783430

Date of advice: 14 December 2022

Ruling

Subject: Ex-gratia payment for non-economic loss

Question 1

Is the ex-gratia payment made to you by your former employer as damages for non-economic loss a capital gain?

Answer

Yes. Your receipt of the ex-gratia payment as damages for non-economic loss is capital gains tax (CGT) event C2, as by accepting this payment you are surrendering your right to make any further claims against your former employer. The amount of the payment exceeds the cost base for obtaining the right to make said claim, therefore the amount is a capital gain.

Question 2

Is the ex-gratia payment made to you by Coles Supermarkets as damages for non-economic loss exempt from taxation?

Answer

Yes. Subparagraph 118-37(1)(a)(i) of the Income Tax Assessment Act 1997 provides that a CGT event occurring as a result of receiving damages for a wrong you suffered in your occupation is disregarded. The payment for damages for non-economic loss in your case was due to you being subjected to unlawful discrimination in the workplace because you have a disability. Therefore, the capital gain is disregarded and this amount is exempt from taxation.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You began working for your former employer sometime prior to 20XX.

You have a physical disability which existed prior to your employment with this employer.

As a result of altered role requirements due to COVID, your disability prevented you from safely performing the physical tasks required of you in the role you had held prior to COVID for a number of years.

You requested for reasonable adjustments to be provided to enable you to continue working in your previous capacity.

These adjustments were supported by your medical doctor in a medical assessment submitted to your former employer.

You attended a meeting with your manager, a human resources representative and your union representative in which you were advised that your duties had been withdrawn and you would not be paid any further wages.

A subsequent email from the human resources representative confirmed that they would not consider providing the adjustments recommended by your medical doctor and reiterated that your duties would remain withdrawn.

You lodged a complaint with the Anti-Discrimination Commission in your region.

The Anti-Discrimination Commissioner for your region accepted your complaint.

The Anti-Discrimination Commission in your region mediated a conciliation conference between you and your former employer.

As a result of these proceedings your former employer offered you a settlement deal which included an ex-gratia payment for non-economic loss amongst other compensatory payments.

In return for the settlement offer your former employer required you to resign, releasing them from any further claims or liability and agreeing to discontinue the proceedings against them.

You agreed to the offer and resigned.

Your former employer paid you $x as damages for non-economic loss.

The $x damages payment exceeds the costs you incurred in obtaining the right to make a claim against your former employer.

No tax was withheld from the payment for damages for non-economic loss.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-25

Income Tax Assessment Act 1997 section 118-37

Income Tax Assessment Act 1997 subsection 118-37(1)

Income Tax Assessment Act 1997 paragraph 118-37(1)(a)

Income Tax Assessment Act 1997 subparagraph 118-37(1)(a)(i)