Taxation Law: Tax Implications of Compensation Receipts and Capital Gains Tax Consequences for Disposal of Main Residence

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

TAXATION LAW1
Table of Contents
Answer to question 1:.................................................................................................................2
Introduction:...........................................................................................................................2
Various Compensation Receipts:...........................................................................................2
Sophie Client:.........................................................................................................................2
2.1: Lump sum damages for potential loss of reputation.......................................................2
2.2: Compensation for the loss of income whilst the machine was being replaced:..............3
2.3: Reimbursement of Legal Fees:.......................................................................................5
3: Kate Client:............................................................................................................................5
3.1 A Lump sum payment for pain and suffering:.................................................................5
3.2 Payment of ongoing medical and cosmetic surgery costs................................................6
3.3 Interest on the lump sum payment...................................................................................7
Conclusion:............................................................................................................................8
Answer to question 2:.................................................................................................................8
Introduction:...........................................................................................................................8
Issues:.....................................................................................................................................8
Laws:......................................................................................................................................8
Application:..........................................................................................................................12
References:...............................................................................................................................15

TAXATION LAW2
Answer to question 1:
Introduction:
Issues:
1.1. The problems concerned in this question is linked with the tax implications of lump
sum amount of damages that is received by the taxpayer as the compensation for the
income loss and reimbursement that relates to the legal fees by Sophie and Kate. Whether
or not such receipts will be considered taxable as income under the ordinary sense of “sec
6-5, ITAA 1997”.
1.2. Another issue that is concerned in this question is regarding the consequences of
capital gains tax that transpires from the payment relating to the damages that is received,
whether or not such kinds of payment will be treated for assessment under “sec 118-37,
ITAA 1997”.
Various Compensation Receipts:
Sophie Client:
2.1: Lump sum damages for potential loss of reputation
Laws:
The description that is made in the “Taxation Ruling of TR 95/35” involves the
application of taxes on the earnings made by a taxpayer from receiving any compensation.
This ruling is imposed on taxpayers that reports the receipts from compensation (Bankman et
al., 2018). The “Taxation Ruling of TR 95/35” is regarded as supportive in establishing the
consequences of the CGT that is linked with the receipt of compensation and ascertaining
whether the money that is received will be considered taxable earnings for the recipient in
“Part IIIA of the ITAA 1936”.

TAXATION LAW3
On finding that the taxpayer has got compensation which is primarily as the outcome
of disposal of any form of underlying asset or any part of the underlying asset of taxpayer,
then in such situation the compensation received will be treated as consideration obtained
from disposing the underlying asset (Oishi et al., 2018). The decision which is passed by the
law court in “Speedly Securities Ltd v FC of T (1988)” on receiving any form of
compensation for the damage of goodwill of business the amount that is given to the taxpayer
is treated capital in nature.
Application:
As understood from the situation of Sophie, it is noticed that she has bought forward a
law suit against Fracpro for providing her with the laser machine that had faulty calibration.
In return Sophie was compensated by Fracpro because she suffered loss of business goodwill
and reputation. The amount of $100,000 given to Sophie by Fracpro amounted to damages
that is received on account of loss of business reputation. By referring the decision that was
made in “Speedly Securities Ltd v FC of T (1988)” the sum of $10,000 that is given to
Sophie is a compensation for the loss business reputation (Schenk, 2017). The money
received does not hold any character of ordinary taxable income under “sec 6-5, ITAA 1997”
and the amount must be considered as the capital in nature.
2.2: Compensation for the loss of income whilst the machine was being replaced:
Laws:
The elucidation that has been given in “taxation determination ruling of TD 93/58”
there are some instances when a taxpayer receives any compensation as the lump sum amount
or in regard to the settlement payment, then the amount that will be received will be held as
taxable income (Miller, 2018). When noticing that the taxpayer has received compensation