What is the cost of not being able to settle?

I searched for ex gratia payments tax Australia and could not find a definitive link. However, a number of places said like the following:
"Are ex gratia payments taxable? ... Ex-gratia payments and statutory redundancy payments will be paid free of tax."

 

That is a bit vague.

What was the payment for specifically? It could be income or capital gains. Unlikely to be tax free I think.

 

The respondent and I went to court, with a further hearing a month or so later. Before that hearing the respondent made an offer to settle. Liability was not admitted, and it seems that the settlement payment falls within the meaning of ex gratia. If so then there seems to be no tax. My tax advisor will resolve this.

 

That doesn't answer my question. What did you sue them for?

Don't see how a definition of ex Gratia comes into it.

 

The suit was for numerous breaches of Australian Consumer Law, and a few other things. Briefly, the respondent gave false advice and broke assurances. An ex gratia payment is one that does not have to be made, where there is no obligation to pay. The respondent and I agreed that if they paid me then the matter would be considered closed and the case would be dismissed or struck off.

 

You must have suffered a loss otherwise you would not have had grounds to sue. The loss may have been for loss of rent for example and would therefore relate to a payment which is income.

 

So if it wasn't paid, the case would have continued?

Doesn't seem to add up to "ex gratia" to me.

 

The settlement agreement described the payment as ex gratia. If the payment had not been made the case would have continued. However, the ATO seems to look only at what the payment is and not the surrounding details. I will find out when I send my tax figures to my accountant.

 

Come on. Are you serious?

Its literally a figure written on a settlement agreement. What do you think the ATO (or anyone for that matter) will characterise it as?

If that sort of logic worked, I'd be crossing out the word "rent" on my lease agreements and writing in "hobby income" instead.

 

This is like reading about nigerean loan scams. Drip feed. Every day thousands of businesses and individuals settle contractual issues through payments. These can be cash, EFT, bank cheque and more. Loads even use their solicitors because that also easy. People rely on the payments system which works quite well. Except what appears one really long and slow complex story involved a continually unnamed entity.

If a bank settles a claim its because of a loss or damage they have caused not might have caused and unproved. eg vendor imposes extra costs, interest for settlement delays and so on. Banks have internal staff who are VERY good at problem solving. QUICKLY. Not months. Going to VCAT etc is a long difficult way to approach a banking problem.

No bank pays a exgratia amount unless there is a loss or damage already caused. Its not a prize draw. You cant claim for something that didnt happen. If there was a event then there may have been a cost. But if the sum received exceeds those costs it could well be taxable. The sum that exceeds eligible costs for which no tax deduction is allowed would likely be taxable but may be a payment for release from further liability and could be tax free in some instances It could also be taxable as ordinary income if your claim included time and lost earnings,wages and the payment was to release that etc.

 

I'm quite serious. I have stated the facts, and await advice on the tax aspect when I submit my return to my accountant. I could not name the bank as I am not permitted to by the terms of the settlement.

The bank staff were quite hopeless, and I can prove this, lots of very hard evidence. I've got at least 20 counts under sundry legislation that I can prove. The bank took weeks to manage a very simple aspect. Due to the bank's actions and inactions, rent has been lost, and this can be quantified. It was only when I went to VCAT that the bank responded. My court costs were minimal. Including all my time to manage this I now have an excellent return on investment.

The bank seems to have paid me as it costs less for them than going to court. I would have won the case, and this would most probably be a matter of public record, bad publicity, another factor in settling. I do not know how much I would have been awarded. The claim did not include time and lost earnings, but I mentioned the loss of rent orally to the bank's lawyer outside the directions hearing. I also mentioned publicity.

The bank made multiple mistakes and paid me to go away, tax status unclear. I'll wait for clarification on this point.

 

You don't sue a bank for being hopeless. It sounds like you sued them for lost rent. Rent is income so it should be taxable.

 

@Paul@PFI @Burramys @Terry_w

This is very interesting to me because my last purchase used funds from an existing loan with ING. I contacted them early to arrange funds to be transferred to my conveyancer's trust account. According to ING there was no way to transfer the funds using online banking. I had to write a letter to them to arrange the transfer. It was like the 1980's! Actually, I think they sent a cheque, which I gave to my conveyancer.

The funds transfer was AMP to ING. I had to write a letter to instruct AMP to transfer funds from specific AMP accounts to specific ING accounts. The banker set up all the transfers then called to verify they were correct. He read each transfer one by one and 2 out of 4 were wrong. Lucky he called to check!

My point is that transfers of large sums from some accounts can be difficult with some institutions.

On the other hand, St George let me transfer $150k to my builder via online banking. I did a test transfer of a small sum first to make sure the details were correct.

 

An update. I submitted the tax information with notes and my tax adviser has not listed the ex gratia payment. I summarised the advice above that the ex gratia payment was questionable. In May 2020 when the tax return is submitted the ATO may query the ex gratia payments.

Proceedings were started as this was the last option. It was not the size of the transfer. It was that the bank would not allow any transfer. There was a very real risk of settlement being delayed, and this proved to be so. Due to the bank having an abysmal management standard, including managing complaints, all my detailed reno plans had to be abandoned, costing several months of rental income. Settlement of the claim covered this.

 

Banks often dont allow certain sorts of transfers. Not without calling them. Days in advance. They will have a process requiring confirmation of your identity and so forth. Very normal.

In cases I have had the typical claim is paid by the bank to avoid a legal claim and to avoid a legal dispute. Surrender of a legal claim and to withdraw a legal dispute may not be taxable. However if the claim on the bank was for lost rent it would be. If your claim was due to (penalty) interest charged by the vendor for a failed settlement then its likely to be revenue in nature since the interest expense you incurred is also a deductible outgoing. You are exchanging a right to income for a payment - Thats just income. The assessable value of the bank payment may be reduced by the deductible outgoing incurred.

TD 93/58...Its a fundamental ruling for all tax students