The ATO has recently issued a document which discusses the implications of receiving a compensation payment from a financial institution.

Compensation Paid From Financial Institutions

Recently, or in the near future, you may be entitled to receive compensation from a financial institution where they have:

  • provided advice which has been found to be inappropriate, or
  • charged for advice that was not provided.

Differing tax treatments apply based specifically on the elements of the compensation payment.

The following is broadly the treatments:

  • Loss on investments – adjustment to capital gains calculation required
  • Refund of adviser fees – assessable income if original fee was deductible
  • Interest component – assessable income in year received.

As a result of these different situations, it is imperative that you receive clear correspondence from the financial institution. This correspondence must show the applicable split between the relevant elements. If you require any assistance on this matter, please do not hesitate to contact us.

Source: CCH