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Edited version of private advice
Authorisation Number: 1052393951665
Date of advice: 8 May 2025
Ruling
Subject: Compensation payment
Question 1
Is the ex-gratia payment assessable income?
Answer 1
No. Based on the information provided to the Commissioner the ex-gratia payment is not assessable income.
Your assessable income includes income according to ordinary concepts, which is called ordinary income (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)).
Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.
Other characteristics of income that have evolved from case law include receipts that:
• are earned
• are expected
• are relied upon, and
• have an element of periodicity, recurrence, or regularity.
The ex-gratia payment you received to compensate you for the incorrect advice you received does not meet the definition of ordinary income and it is therefore not assessable income.
Question 2
Is the ex-gratia payment paid to you a capital payment?
Answer 2
No. Based on the information provided to the Commissioner the ex-gratia payment paid to you is not a capital payment.
You make a capital gain or capital loss because of a capital gains tax (CGT) event happening (section 102-20 of the ITAA 1997). For most CGT events, your capital gain or loss is the difference between your capital proceeds and the cost base or reduced cost base of your CGT asset.
The capital proceeds from a CGT event include the money you have received, or are entitled to receive, in respect of the event happening (subsection 116-20(1) of the ITAA 1997).
The payment was not paid to you for a loss, personal injury, or damage to a capital asset.
There has been no CGT event in relation to the receipt of the payment.
The payment is therefore not a capital payment and the CGT provisions do not apply to the payment.
This ruling applies for the following period:
Year ending XX June 20XX
The scheme commenced on:
XX July 20XX
Relevant facts and circumstances
You have an income protection payment.
In a previous year you approached an XXX to ask for a freeze on your payments.
The insurer told you that they were not able to offer you any hardship assistance.
You made a complaint with the relevant authority.
As a result of this complaint the insurer offered you an ex-gratia payment which you accepted.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5