Key News Summary:  The ATO issued Taxation Determination TD 2018/16, on Wed 5.12.2018, ruling that payments made, under the National Redress Scheme to victims of institutional child sexual abuse, are not taxable.


 

Ruling

1. If an application made under the National Redress Scheme for people who have experienced institutional child sexual abuse (Redress Scheme) is approved, the applicant may receive:

  • a lump sum redress payment of up to $150,000;
  • a payment of up to $5,000 for counselling and psychological services.

2. Neither of these payments will be assessable income of the recipient, and neither of the payments will be subject to tax as a capital gain because any capital gain would be disregarded.

Date of effect

3. This Determination applies from 1 July 2018.

Commissioner of Taxation
5 December 2018

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The reasons for this include the following:

  1. That this kind of compensation does not fall within any of the 5 categories of ‘ordinary income’ – reward for services; proceeds of a business; proceeds from a profit making undertaking or scheme; income from property (investments); or substitutes for any of these other forms of income. Ordinary income is assessable under s6-5 of the ITAA97.
  2. That there will be no assessable ‘capital gain’ (under s102-5 of the ITAA97). This is because s118-37(1)(a) of the same Act says that capital gain or capital loss from a CGT event is disregarded, when the CGT event relates directly to compensation or damages received for any wrong, injury or illness an individual suffers personally. The Commissioner confirms that such this exemption is not undone, by the payment ending the recipient’s right to compensation under the scheme (which is a CGT event C2). In TR 95/35, he ruled that the gain on their rights ending, is ‘directly’ related to these personal wrongs, for the purposes of this exemption.

[ATO website: TD 2018/16; LTN 235, 5/12/18; Tax Month – December 2018]

FJM 8.1.19

CPD (comprehension) questions

  1. Is this determination about compensation for child sexual abuse?
  2. Is it assessable?
  3. What are the 5 categories of ordinary income?
  4. Is there an assessable capital gain?
  5. What does s118-37(1)(a) exempt?
  6. Why did the existence of a capital gain, from CGT event C2 not matter?

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