Settlement Compensation Tax Approaches: Litigation Conference 2022 The Law Society of Tasmania 18 November 2022
Introduction Overview The deal for compensation is done; until the tax consequences are considered. Litigation practitioners need a basic understanding of income tax, capital gains tax (CGT), goods and services tax (GST) and the ATO's administrative practices in taxing compensation settlements to maximise the clients after tax compensation and avoid professional negligence claims. The terms of settlement can significantly influence the tax treatment and party responsible for any tax liability and tax administration compliance. This paper provides an introduction to taxation principles and rules of thumb in settling common claims and preparing terms of settlement including: settlement compensation tax approaches income tax capital gains tax goods and services tax duty and payroll tax taxation of compensation interest and legal fees taxation adjustments and indemnities drafting terms of settlement CONTENTS Introduction ................................................................................................ 1 Overview .................................................................................................... 1 Income Tax and Capital Gains Tax ........................................................... 2 Goods and Services Tax Introduction ..................................................... 13 Duty .......................................................................................................... 19 Payroll Tax ............................................................................................... 20 Examples ................................................................................................. 21 Land damage ........................................................................................... 21 Land disposal compulsory land acquisition ............................................. 22 Breach of contract.................................................................................... 22 Employment termination compensation .................................................. 23
Personal injury lump sums....................................................................... 24 Defamation damages............................................................................... 24 Professional negligence........................................................................... 25 Drafting Settlement Deed ........................................................................ 25 1.1 Goods & Services Tax ....................................... 26 1.2 Private Ruling ..................................................... 26 1.3 Disputing Private Ruling ..................................... 26 1.4 Tax Indemnity..................................................... 27 1.5 Notice of Claim ................................................... 27 Conclusion ............................................................................................... 27 Glossary ................................................................................................... 29
© Ron Jorgensen 2022