Sometimes a person is paid a lump sum in settlement of a number of different items of dispute. This can be in an employment situation or in other situations. The payment can relate to personal injuries as well as compensation for lost income.
Due to this, part of the payment can relate to matters of an income nature and part of the payment can relate to matters of a capital nature. When the lump sum is undissected, how is the amount taxed?
In this video, John Jeffreys, Tax Counsel of Tax & Super Australia, explains the taxation of these amounts with reference to the case YCNM and the Commissioner of Taxation. He also explains how to plan for the least taxation on these types of payments.