Taxation Law: Compensation Receipts and Capital Gains Tax Consequences

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:.......................................................................................4
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:..........................................................................................................................11
Conclusion:..........................................................................................................................13
References:...............................................................................................................................15

TAXATION LAW2

TAXATION LAW3
Answer to question 1:
Introduction:
Issues:
1.1. The main issue to the question is whether the lump sum amount as damages,
compensation relating to the loss of income and reimbursement relating to legal fees
received by Sophie and Kate for damages will be treated as the taxable earnings under the
legislative provision of “sec 6-5, ITAA 1997”.
1.2. Is the capital gains arising from the damages payment is not regarded as taxable
under the “sec 118-37, ITAA 1997”?
Various Compensation Receipts:
Sophie Client:
2.1: Lump sum damages for potential loss of reputation
Laws:
As denoted under the “Taxation Ruling of TR 95/35” it is largely related with
providing guidelines regarding the tax liability of income earned from the compensation
receipts (Woellner et al., 2016). This rule is usually applied on those individual taxpayers that
gets any money as compensation. The ruling is useful in outlining the CGT outcomes that is
associated to the receipt of compensation payments and ascertain whether the amount
received should be taken into consideration as the taxable receipts for the recipient under
“Part IIIA of the ITAA 1936”.
Where a taxpayer receives any compensation which is completely associated to the
disposal of underlying asset or any part of the underlying asset of the individual taxpayer then
the compensation that is received amounts to a consideration received for the sale of asset