Compensation by financial institution and tax

The ATO says that taxpayers will need to consider certain tax consequences if they have personally received compensation from a financial institution because they:

  • received advice from the institution that was found to be inappropriate, or
  • paid for advice that they did not receive.

The tax treatment of the compensation depends on what the compensation is for.

A compensation payment can include some or all of:

  • compensation for loss on an investment
  • a refund or reimbursement of fees
  • interest.

The ATO says an individual will generally be required to consider the tax consequences of each compensation amount separately.

Tax practitioners may need to contact the ATO for advice if their clients:

  • held the investments on revenue account
  • held the investments on trust
  • receives compensation related to a superannuation account or SMSF

There are: compensation for loss on investment, compensation for investments you have disposed of, compensation in relation to existing investments.




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