Gourley revisited - taxing damages

Graw, Stephen (2019) Gourley revisited - taxing damages. James Cook University Law Review, 25. pp. 33-62.

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Abstract

For taxation purposes compensation payments assume the same character as the thing they replace — and they are then taxed accordingly. Compensation for lost income is therefore normally taxable in the hands of the recipient and, consequently, the operation of the ‘compensation principle’ requires that the award be made on a pre-tax basis. Where compensation is awarded not for lost income but for lost ‘earning capacity’ (a capital asset) the calculation of quantum becomes more complicated. The ‘Gourley principle’ evolved to address that issue. In short it provides that in personal injuries and wrongful dismissal actions, the amount awarded for loss of earning capacity is to be calculated on a ‘net of tax’ basis, because those damages, not being on income account, are not themselves taxable. While there is much to commend the principle in the context of the compensation principle, it fails to take account of a number of issues that can affect the adequacy of compensation actually awarded and may therefore disadvantage the plaintiff. This paper considers areas in which a ‘purist’ application of the principle can produce ‘unjust’ results, examines the courts’ responses to those problem areas and suggests options for possible legislative reform.

Item ID: 62285
Item Type: Article (Research - C1)
ISSN: 1321-1072
Keywords: damages; compensation payments; quantum; taxation; Gourley principle.
Date Deposited: 26 Feb 2020 02:58
FoR Codes: 18 LAW AND LEGAL STUDIES > 1801 Law > 180125 Taxation Law @ 50%
18 LAW AND LEGAL STUDIES > 1801 Law > 180104 Civil Law and Procedure @ 50%
SEO Codes: 94 LAW, POLITICS AND COMMUNITY SERVICES > 9499 Other Law, Politics and Community Services > 949999 Law, Politics and Community Services not elsewhere classified @ 100%
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