Income tax: capital gains: if a taxpayer receives compensation for the loss or destruction of his or her motor vehicle, or for permanent damage to his or her motor vehicle, does the receipt have any CGT consequences?

No. Compensation received wholly for the loss or destruction of the vehicle, or for any permanent damage to the vehicle, does not fall within Part IIIA of the Income Tax Assessment Act 1936 ('the Act'), and has no CGT consequences. This includes any amount received under an insurance policy in respect of the vehicle which is wholly attributable to the loss or destruction of the vehicle, or for any permanent damage to the vehicle.

A motor vehicle is an 'exempt asset' as that term is used in Taxation Ruling TR 95/35 (see paragraph 3 of TR 95/35). As explained in paragraphs 14 and 66 to 68 of TR 95/35, compensation received for permanent damage to, or a permanent reduction in value of, an underlying asset which is an exempt asset has no CGT consequences.

We consider that, while the right to seek compensation is an asset for the purposes of Part IIIA, it is appropriate to 'look through' that asset to the underlying exempt asset which has triggered the receipt of the compensation.