The Hans Pearson v State of Queensland: Applicant's Settlement Distribution Scheme - distribution received from the settlement sum
Please note that the PDF version is the authorised version of this ruling.
|Table of Contents||Paragraph|
|What this Ruling is about|
|Who this Ruling applies to|
|When this Ruling applies|
|Appendix - Explanation|
Relying on this Ruling
This publication (excluding appendix) is a public ruling for the purposes of the Taxation Administration Act 1953.
If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.
Further, if we think that this Ruling disadvantages you, we may apply the law in a way that is more favourable to you.
1. This Ruling sets out the tax consequences for individuals who receive a distribution from the Settlement Sum under The Hans Pearson v State of Queensland: Applicant's Settlement Distribution Scheme (Settlement Distribution Scheme).
- are an individual that falls into a category of persons referred to in paragraph 15 of this Ruling
- are a registered participant in the Settlement Distribution Scheme, and
- receive a distribution from the Settlement Sum.
7. A distribution from the Settlement Sum to a participant under the Settlement Distribution Scheme is an amount received for the ending of rights to seek compensation and is subject to the capital gains tax (CGT) provisions in Part 3-1.
9. However, any capital gain or capital loss a participant makes as a result of receiving a distribution from the Settlement Sum under the Settlement Distribution Scheme is disregarded under subsection 118-37(1).
10. The following description of the scheme is based on information provided by the administrator of the Settlement Distribution Scheme. If the scheme is not carried out as described, this Ruling cannot be relied upon.
11. The Settlement Distribution Scheme was established on 17 January 2020, pursuant to a court order in respect of the settlement of The Hans Pearson v State of Queensland class action proceedings (Class Action Proceedings).
12. The Class Action Proceedings were commenced by Mr Hans Pearson (the Applicant) in his own right and on behalf of Aboriginal and Torres Strait Islander Group Members (the Group Members) under Part IVA of the Federal Court of Australia Act 1976.
- the State of Queensland (Queensland) owed certain duties to the Applicant and the Group Members as a trustee and fiduciary in connection with wages and pocket money earned by the Applicant and the Group Members while their employment was controlled by the former Protection Acts in force in Queensland during the period 12 October 1939 to 4 December 1972 (the Claim Period)
- Queensland contravened the Racial Discrimination Act 1975 in the conduct of a reparation scheme established and operated by Queensland during the period 2002 to 2018, and
- regulations made pursuant to one of the former Protection Acts operated to enslave the Applicant and the Group Members in contravention of law.
15. There are approximately 14,000 individuals eligible to receive a distribution from the Settlement Sum under the Settlement Distribution Scheme. To be a participant under the Settlement Distribution Scheme, the individual must be:
- an Aboriginal or Torres Strait Islander person
- who lived in a district or on a mission or reserve in Queensland
- who was employed, or required to work, during all or part of the Claim Period, and
- whose employment was controlled or required to be controlled by the former Protection Acts, or
- where such a person is deceased, a relative of that person (being a surviving spouse or child).
17. The administrator of the Settlement Distribution Scheme holds the Settlement Sum on trust for the participants until the entitlements of the participants are determined and distributions of the Settlement Sum are made.
- Federal Court orders and Settlement Distribution Scheme dated 17 January 2020, and
- Fourth further amended statement of claim.
Commissioner of Taxation
9 September 2020
|This Explanation is provided as information to help you understand how the Commissioner's view has been reached. It does not form part of the binding public ruling.|
|Table of Contents||Paragraph|
|When a distribution from the Settlement Sum will be assessable income||19|
- income in the ordinary sense of the word (ordinary income), or
- not ordinary income but through the operation of the Income Tax Assessment Acts it is included in assessable income (statutory income).
To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business.
23. Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, as are amounts that are the product in a real sense of any employment of, or services rendered by the recipient. Amounts paid in substitution for salary or wages foregone or lost may also be ordinary income.
24. No single factor is determinative of the receipt's character, but some factors may be more relevant than others in light of the circumstances of the case (see, for example, Commissioner of Taxation (Cth) v Montgomery  HCA 34).
25. Ultimately, whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. The whole of the circumstances must be considered and the motive of the payer may be relevant to this consideration.
26. While a participant, or their relative, must have been employed, or required to work, to be eligible to be a registered participant in the Settlement Distribution Scheme, the distribution they receive from the Settlement Sum is not the product of employment or services rendered by the participant, nor is it considered to represent the payment of wages foregone or lost. Furthermore, a distribution from the Settlement Sum is not relied upon by the participants for their regular expenditure or paid for that purpose.
27. Distributions made from the Settlement Sum under the Settlement Distribution Scheme are one-off lump sum payments in the nature of compensation. Accordingly, a distribution from the Settlement Sum does not possess the characteristics of ordinary income and is therefore not assessable under section 6-5.
29. Statutory income relevantly includes net capital gains under section 102-5. In broad terms, a net capital gain is the difference between a person's capital gains and capital losses for an income year.
33. However, any capital gain or capital loss made from a CGT event is disregarded pursuant to subparagraph 118-37(1)(a)(ii) where the CGT event relates directly to compensation or damages received for any wrong, injury or illness an individual or their relative suffers personally.
34. Any capital gain (or capital loss) arising from CGT event C2 happening on the ending of a participant's rights to seek compensation is disregarded under subparagraph 118-37(1)(a)(ii) as it relates directly to compensation for personal wrong, injury or illness.
You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
Defined in paragraph 14 of this Ruling.
The Aboriginals Preservation and Protection Act of 1939 (Qld) (repealed), The Torres Strait Islanders Act of 1939 (Qld) (repealed), and The Aborigines' and Torres Strait Islanders' Affairs Act of 1965 (Qld)(repealed).
This Ruling is made on the basis that a relative that is registered with the Settlement Distribution Scheme falls within the definition of 'relative' in subsection 995-1(1).
Not previously issued as a draft
ITAA 1997 6-5
ITAA 1997 6-5(1)
ITAA 1997 6-10
ITAA 1997 Pt 3-1
ITAA 1997 102-5
ITAA 1997 104-25
ITAA 1997 108-5
ITAA 1997 118-37(1)
ITAA 1997 118-37(1)(a)(ii)
Federal Court of Australia Act 1976
Racial Discrimination Act 1975
The Aboriginals Preservation and Protection Act of 1939 (Qld) (repealed)
The Torres Strait Islanders Act of 1939 (Qld) (repealed)
The Aborigines' and Torres Strait Islanders' Affairs Act of 1965 (Qld) (repealed)
Commissioner of Taxation (Cth) v Montgomery
 HCA 34
198 CLR 639
99 ATC 4749
42 ATR 4757
3 ALJR 1160
GP International Pipecoaters Pty Ltd v Commissioner of Taxation (Cth)
 HCA 25
170 CLR 124
90 ATC 4413
21 ATR 1
64 ALJR 392 1