JSJG and Commissioner of Taxation (Taxation)

This matter concerned an appeal by JSJG (the Applicant) against a decision of the Commissioner of Taxation (the Respondent) regarding the assessability of a settlement sum for capital gains tax (CGT) purposes. The dispute arose from a settlement agreement reached between the Applicant and ZAL and ZAS (the Releasees) concerning a total permanent disability (TPD) claim. The Applicant sought to have a portion of the settlement sum, specifically $803,000, treated as exempt from CGT.

The primary legal issue before the Tribunal was whether the settlement sum of $803,000, paid under a settlement release agreement, was compensation for the taxation consequences of receiving a lump sum payment instead of monthly payments, and therefore exempt from CGT under section 118-37(1)(a) of the *Income Tax Assessment Act 1997* (Cth). The Applicant contended that this portion of the settlement was specifically intended to compensate for the adverse tax implications of the lump sum receipt.

The Tribunal considered the terms of the settlement release agreement, which stipulated that the settlement sum was paid in consideration for the Applicant discontinuing legal proceedings and releasing the Releasees from all claims related to the TPD claim and associated policies. While the agreement allocated $297,000 specifically to the TPD claim to be preserved in a fund, the remaining $803,000 was paid directly to the Applicant. The Tribunal found that the wording of the settlement agreement did not demonstrate that the $803,000 was paid as compensation for the taxation consequences of the lump sum receipt, as required by section 118-37(1)(a).

Consequently, the Tribunal set aside the Respondent's decision under review. It remitted the matter to the Respondent with a finding that the lump sum payment of $803,000 was not assessable to the Applicant in the income year ended 30 June 2016, implying that it was not subject to CGT.