Tax treatment of compensation from financial institutions
By 30 June 2019, five major financial institutions paid $119.7 million in compensation for poor financial advice to 6,318 customers. The question is how to treat these payments for tax purposes?
The tax treatment varies according to why the compensation was paid and who the payment was made to. Compensation payments are made for a number of reasons including fee for no service, deficient advice, or overcharging for insurance premiums for death or disability insurance cover. Each one has different tax consequences.
In some cases, the compensation will be assessable income and in others will impact the cost base of any underlying investment. If an investment has already been sold, the compensation may trigger a capital gains tax liability and in some cases it will be necessary to amend prior year tax returns
There may also be GST consequences. In general, the GST treatment will mirror the GST consequences for the financial institution that made the payment. If you or your superannuation fund claimed GST credits, these may need to be repaid where a compensation amount includes a GST component.
Managing the tax treatment of compensation payments can be tricky. If you or your superannuation fund has received a compensation payment, please let us know as soon as possible so we can assist you get the tax treatment right.
Need some help with how to treat a compensation payment?
Despite the current economic environment, the company tax rate will reduce to 26% for small and medium businesses from 1 July 2020.
News headlines recently stated that casual workers have won the right to paid leave following a decision in the Federal Court. As usual, the devil is in the detail.
The Government has announced grants of $25,000 to encourage people to build a new home or substantially renovate their existing home.
The material and contents provided in this publication are informative in nature only.
It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
Liability limited by a scheme approved under Professional Standards Legislation