Receiving Compensation Payments
With the fall out from the Royal Commission into the banking industry, are you due to receive any of the compensation payments being paid from the various financial institutions?
If so, please be aware that you will possibly face tax consequences on this receipt of money. Therefore please see us as soon as you become aware of any entitlement to compensation payments.
Compensation for losses on your investments
If you are being receiving this money because you received wrong advice and you lost money on following this advice, then there will CGT consequences on the money you receive.
If you have since sold this investment, then this compensation payment will be part of the sale price and is necessary when calculating your capital gain or loss. This may mean amending a prior year’s tax return where you sold this investment in a year that we have already lodged your return.
If you are still holding this investment, then we will need to adjust the purchase price so as to take in account the compensation you received.
Refund or Reimbursement of Adviser Fees
If you have been overcharged in the past and this money is a reimbursement of your excess fees, the tax treatment does depend on how the original fees were treated.
If a tax deduction was previously claimed, then the compensation is assessable income for the year you received the money. If no tax deduction was claimed, then it is not assessable income.
If any part the compensation amount include an interest component, then this interest is assessable as ordinary income in the year you receive the funds.
If any of the payment relates to advice and investments in your SMSF, then the compensation must be paid to the SMSF and not to you individually.
Poole Group is here to help so if you are notified that you are due for any compensation payments, then please give us a call on 5437 9900 to allow us to provide specific advice covering your personal situation.