Edited version of private advice

Authorisation Number: 1052147574316

Date of advice: 1 August 2023

Ruling

Subject: Lump sum - compensation - inappropriate advice

Question 1

Is the remediation amount assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

The remediation amount (the Payment) does not have the characteristics of ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), such as being relied upon, regular or repeated payments, it was not a payment for any service you had performed, or for any investment. Rather it is capital in nature and potentially subject to the capital gains tax provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

Question 2

Will the capital gains tax exemption under section 118-305 of the ITAA 1997 apply to the Payment?

Answer

Yes.

An exemption is provided under section 118-305 of the ITAA 1997 for any capital gain or loss made from a capital gains tax event happening in relation to a right to an allowance, annuity or capital amount payable out of a superannuation fund or an asset of a superannuation fund.

In your case, it is considered that the Payment you will receive is in relation to such a right, being a right to provide you with the present value of the superannuation entitlement that you lost as a result of the actions of the advisor. Therefore, you can disregard any capital gain or loss made in relation to receiving the Payment.

This ruling applies for the following period:

Income year ending 30 June 20XX.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances

You were planning to retire and had discussion with an advisor (the Advisor) representing your super fund (the Fund).

You had further meetings with the Advisor and had made a choice in relation to how you would receive your superannuation based on the advice you had received.

A review of the advice you had received was undertaken by the Fund after several years and you were advised that:

•         the advice you had received was assessed as being inappropriate given their knowledge of your objectives, financial circumstances and needs at the time the advice was provided

•         you would be paid a remediation amount to put you in the position you would have been if not for the inappropriate advice; and

•         the remediation amount, being the Payment, was calculated as being the value of your superannuation at the time the advice was provided, multiplied by the investment return rate.

You will receive the Payment during the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-305