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Tuesday, 10 May 1994
Page: 494

Senator COOK —In my capacity as Minister representing the Treasurer, I was asked a question by Senator Watson on 4 May about compensation paid to parties under the Midford Paramount case. At the time, I sought to put the question on notice and obtain an answer from the Treasurer. I have now obtained the following answer:

  Due to the secrecy provisions of the tax law, the Commissioner of Taxation cannot provide particulars relating to specific taxpayers.

  I am informed that the compensation payments were assessed on the basis that they would be subject to the application of the tax laws.

  The formal written advice of the Government's decision to offer compensation to each claimant stated that the compensation had been assessed on a pre-tax basis.

  Any liability to tax in respect to those payments is a matter between the claimant and the Commissioner of Taxation to be dealt with under the tax laws.

  The following general principles apply to the taxation of compensation payments.

  A lump sum payment made to an individual to compensate for the loss of income earning capacity is not taxable as ordinary income.

  A lump sum paid as compensation or damages for any wrong or injury suffered by an individual to his or her person or in his or her profession or vocation is also not subject to capital gains tax.

  Capital gains tax will also generally not be payable on amounts paid, as part of the compensation package, to reimburse an individual for specific expenses, such as legal expenses, incurred by the individual in connection with the claim.

  Amounts paid in substitution of lost income is of an income nature and is subject to income tax.