YCNM and Commissioner of Taxation (Taxation)

The Administrative Appeals Tribunal considered the characterisation of a settlement payment made by an insurer to the applicant, YCNM, under a deed of release. The dispute arose from a claim made by YCNM under a group salary continuance insurance policy, following complaints about the conduct of the insurer. The core issue was whether the settlement sum received by YCNM constituted ordinary income or was eligible for capital gains tax exemptions.

The Tribunal was required to determine whether the settlement sum was assessable as ordinary income under section 6-5 of the *Income Tax Assessment Act 1997* (Cth). Further, the Tribunal had to consider whether the exemptions provided by section 118-37 or section 118-300 of the *Income Tax Assessment Act 1997* (Cth) applied to the settlement sum, and if so, whether the sum was apportionable.

The Tribunal found that the settlement payment was not a simple payment of benefits under the policy, but rather a compromise of a dispute involving a claim for damages for the insurer's conduct. Consequently, the Tribunal concluded that the settlement sum was not entirely ordinary income. The Tribunal also determined that the exemptions under sections 118-37 and 118-300 were not applicable in this instance. The decision of the Commissioner of Taxation was set aside and remitted for reconsideration.