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Is Newspaper Court settlement -taxable income?

I have a client that is very close to some celebraties. A very well known newspaper published things they shouldn't have and the client took them to court. I am not sure if the newspaper settled out of court or if he won the case, but he received an amount for damages. Is this taxable income that should be reported on the tax return?



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It depends on the facts

To be taxable income, the receipt first needs to be income, which requires that there be a source from which it's obtained., eg trade, employment, investment or contractual arrangement.

You haven't really given enough information to establish whether there's a source or what the damages relate to.

Damages are usually awarded for personal injury (including injury to feelings/reputation) or in respect of financial loss.

Where the damages (or settlement) are for financial loss, then there's likely to be a source, eg a trade or employment.

A one off payment of damages (or settlement) for personal injury are a capital receipt and won't be taxable. Periodical payments for personal injury may be income, but still won't be taxable.

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By pawncob
22nd Feb 2013 12:43

There's no business

As Steve says, damages are  awarded for injuries, so they're not business related. No taxable source.

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22nd Feb 2013 15:39

I thought that in the Oakley case it was decided that damages for a loss where the original amount would have been taxable is also taxable.


We need David on this one

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I agree Bernard

As I've indicated if the damages are for financial loss, there's likely to be a taxable source to which they can be attributed.

Given the nature of the OP though it seemed more likely that they would be for injury which will be non-taxable.

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Hi Bernard,

Please can you provide a bit more information on the Oakley case? I can't seem to find such a case?

Or are you referring to the Gourley principle, whereby a trader that receives damages for loss of earnings due to injury is awarded damages (by the court) based on the earnings they would have received, less the tax they would have paid on them?

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27th Feb 2013 09:01

Thanks for the info !

Thank you so much for the comments. I understand enough now to ask the right questions and will find out what the court settlement was awarded for.

Thanks again !



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27th Feb 2013 09:08

If its damages (ie Capital receipt)

I just re-read your comments. If its relates to damages, you mentioned it is a capital receipt. Does that mean it will be taxed as capital gain? I think I have just confused myself.

The client trades as a sole trader but at this moment I am not sure if the award relates to financial loss for the business or damages for personal injury. It may actually relate to both.....I will find out.



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Only for personal injury

If the damages relate to personal injury and are paid as a one-off payment, they will be capital, but still won't be taxable.  Damages for personal injury shouldn't be taxable at all.

For financial loss though are likely to be taxable though if there is an income source that they're connected with (like the trade).

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