Winning treasure from the courts - treatment of compensation payments and damages awards paper

Published on 07 Oct 06 by VICTORIAN DIVISION, THE TAX INSTITUTE

Suppose a client is offered compensation either for his consent to the cancellation of valuable rights, or to settle a claim for personal injury or unfair discrimination. To deliver the best after tax outcome tax practitioners need to be aware of the possible pitfalls. This paper considers a number of practical case studies exploring:

• how damages, costs and pre and post judgement interest are taxed
• when they are deductible on ordinary principles or under the new black hole expenditure provisions
• when they are consideration for taxable supplies or give rise to an entitlement to an input tax credit
• indemnities, damages for breach of warranty, reimbursements and liquidated damages clauses in contracts
• difficulties arising when taxation of damages becomes an issue in the conduct of litigation.

Author profile

Michael Hines

Michael is an experienced practitioner at the Victorian Bar, specialising in taxation and commercial law. He is also a senior fellow of the University of Melbourne having taught post-graduate courses in income tax and State taxes. Michael previously worked at Allens Arthur Robinson as Tax Counsel and then Special Counsel specialising in income tax, GST, tax audits and tax litigation. - Current at 01 September 2011

More by Michael HINES

• Finding buried treasure - 01-February-2007
• Drawing the veil over taxation advice given by accountants - part 2 - 01-August-2004
• Drawing the veil over taxation advice given by accountants - Part 1 - 01-July-2004
• The impact of capital gains tax on damages - 01-November-2002
• Value shifting and division 139 - what does it all mean? - 01-February-2002

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