Understanding your rights and entitlements related to compensation, or payments made to cover damages experienced by you, can be a complicated and exhausting learning curve. Gordon Legal are here to help you manage your claim for compensation and/or damages. Here we have put together some basic information on how your payouts may affect your income tax obligations to assist you once your successful claim has been settled.
As this can be a complicated area to understand fully, if you need further information or advice, please feel to contact us on 1800 21 22 23 or log on to our website at www.gordonlegal.com.au.
The short and simple answer is no.
Monies received by you for compensation or damages is not taxable as it does not fall under the category of income received. You did not work for your compensation or your damages payments, and it was not accrued as a result of the sale or interest made on other monies or assets. As such, you are not obligated to report your compensation or damages payments to the Australia Taxation Office (ATO) and thus pay any portion of them as tax to the government.
However, for any additional money you have received as a result of your compensation or damages payments, you are required by law to report this to the ATO. Here is where it becomes a little bit more complicated.
If you have lodged a successful claim for compensation or damages and have received either regular payments or a lump sum payout, then that money is yours as a result of the legal process you undertook. If that money is then used by you to help you make an income, then the income you subsequently make, if any, then becomes reportable just like any regular income would.
If you use that money to, for example, purchase a business as a mobile dog groomer, then you are still not required to report that payment in your annual tax return. For any money that you have received from the purchase of that business and your new work as mobile dog groomer, however, you must report that to the ATO when lodging your tax return as you would for any other business earnings regardless of how you funded it initially.
The money you used to purchase the business, so long as it was received entirely from your compensation or damages payment/s, is not reportable, but the money you subsequently made from the business you purchased with it, is.
If, for example, you chose to place your compensation or damages payment/s into a savings account then you are still not required to report that money to the ATO. However, if the deposit of that money accrues interest – which it will – then you are required by law to report the interest you have made on that deposit to the ATO at the time of your tax return, just as you would report interest accrued on any other savings deposits that you may have.
If you are at all confused about how you should report your compensation money or any damages payments that you have received, always seek professional advice as this will save potential headaches in the long run.
As a team of specialist compensation lawyers and legal professionals, with decades of experience in compensation and personal injury claims, Gordon Legal has developed a strong reputation for success in our field.
We offer our clients a ‘no win, no fee’ agreement and here we have put together some more information about what that agreement entails and what it really means for our clients.
Firstly, ‘no win, no fee’ is exactly how it sounds. If you have engaged a lawyer on a ‘no win, no fee’ basis, then that essentially means that you do not incur the legal costs relating to your lawyer’s time spent related to your case or claim unless your lawyer successfully wins your case. You will not find yourself out of pocket for lawyer’s fees related to a loss.
Why, then, would any lawyer offer you this agreement? Is it too good to be true? Absolutely not.
When a law firm such as Gordon Legal develops a reputation for success in their specialist field/s then it is entirely reasonable that they will offer their clients a guarantee that should their claim for compensation or damages not be successful, then they will not be forced to pay for the time and expertise their law firm has invested into their case or claim.
In essence, this means that your law firm is so confident in their abilities to successfully manage your case or claim that they are prepared to absorb the costs associated with the time processing and fighting for your claim until that claim is successfully settled.
A ‘no win, no fee’ agreement means that legal fees associated with the billable time your lawyer/s spends on your claim or case is not billed to you at the conclusion of your claim if your claim is unsuccessful. There may be other costs incurred which fall outside of this scope, known as disbursement costs, associated with the legal process while your claim is being fought or mediated. These costs can sometimes include the cost of obtaining medical reports, police reports, courier fees, barrister fees, and other expenses such as printing or photocopying.
At Gordon Legal in most cases we will back our judgement about your case and also agree to cover the cost of the disbursements you incur in the unlikely event that your claim is unsuccessful.
As with any legal agreement, you should carefully consider your options and expectations before you proceed. When we engage our clients on a ‘no win, no fee’ agreement, we are very careful to ensure that you understand all of your rights and obligations before we proceed. The conditions of your legal arrangement with our team at Gordon Legal will be explained to you in full before we proceed with your case or claim.
We strongly recommend that if, at any time, you become confused about how your arrangement works, or believe you require clarification about your obligations, that you speak with your lawyer immediately before going any further. We are more than happy to go through our ‘no win, no fee’ arrangement in detail, helping you to understand everything you may find confusing before we proceed with your case. Contact us today on 1800 21 22 23 for more information.