VIC How will Payment from Civil Case Reflect on Tax Return?

[brownbag]

My son is suing someone for damages and settlement is happening soon. Officially, he is the wounded party but we've agreed that if possible, we'll split the proceeds (between my wife and I, and our other son, who all were damaged by the accused's actions). I'm wondering how the payment will be treated in respect of tax return. I presume that we need to consult with a tax lawyer but at this stage I'm just wanting some general information on the following:

1. How is the proceeds treated in relation to tax?
2. If he gifts us these amounts, which may be large, how will they be treated in relation to tax?

Thanks all.

 

[Sophea]

Some court awarded damages are taxable and some are not. It will depend on the nature of proceedings. If you've made a personal injury claim and you agree to a settlement, or a court orders in your favour, such payments are tax-free, provided certain conditions are met. The same often applies for medical claims and some employment claims. However, other payments may be deemed as income or capital gain and will be taxed a such.

I'm not sure how the gifts work, you will have to speak with a taxation lawyer or an accountant about that.