---
title: "Check the capital gains treatment of compensation or damages"
url: "https://ailawframework.com/practice/personal-injury-and-compensation/check-the-capital-gains-treatment-of-compensation-or-damages"
type: "task"
site: "AI Law Framework"
id: "A21-DM20261023-5"
practice_area: "Personal Injury & Compensation (workers compensation, CTP/TAC, medical negligence)"
tier: "yellow"
lawyer_review: "required"
last_reviewed: "2026-10-25"
---

# Check the capital gains treatment of compensation or damages

> The firm-controlled tool flags a compensation receipt against the capital-gains disregard in the section the lawyer names, and it leaves ordinary-income questions blank. It does not write tax advice to the client.

Canonical page: https://ailawframework.com/practice/personal-injury-and-compensation/check-the-capital-gains-treatment-of-compensation-or-damages  
Last reviewed: 2026-10-25

Site index for agents: https://ailawframework.com/llms.txt

## Key facts

| Fact | Value |
| --- | --- |
| Practice area | [Personal Injury & Compensation (workers compensation, CTP/TAC, medical negligence)](https://ailawframework.com/practice/personal-injury-and-compensation.md) |
| Human involvement | Yellow: Lawyer and AI draft together |
| How AI is used | The firm-controlled tool flags a compensation receipt against the capital-gains disregard in the section the lawyer names, and it leaves ordinary-income questions blank. It does not write tax advice to the client. |
| What the lawyer must review | You decide whether s 118-37 disregards a capital gain on this receipt. You decide whether any periodic payment was ordinary income. Use a firm-controlled tool. Wage, tax and care records are confidential under ASCR r 9 and APP 11. Decide whether a breach would be notifiable under the Privacy Act 1988 (Cth). |
| Written for / versions | 3 jurisdiction versions below |

## Checking plan

**Source-by-source verification**

Flag the capital-gains disregard only. Leave ordinary income to the lawyer.

- What the AI does: The firm-controlled tool flags a compensation receipt against the capital-gains disregard in the section the lawyer names, and it leaves ordinary-income questions blank. It does not write tax advice to the client.
- What the lawyer does: You decide whether s 118-37 disregards a capital gain on this receipt. You decide whether any periodic payment was ordinary income. Use a firm-controlled tool. Wage, tax and care records are confidential under ASCR r 9 and APP 11. Decide whether a breach would be notifiable under the Privacy Act 1988 (Cth).
- Who reviews: Responsible lawyer with competence in the matter
- Basis: Practical workflow informed by the linked primary sources; the traffic light and working checks are editorial guidance, not a court classification.
- Why: The level reflects what the work is, the consequence of an error, and how much of the output the lawyer must independently re-derive.
- Restriction: The lawyer sets the rates, hours, percentages and net weekly loss. The tool shows arithmetic only from figures the lawyer has accepted.

## Checks the lawyer makes

1. Limit the flag to a capital gain or capital loss from a CGT event relating directly to compensation or damages of the kind s 118-37(1)(a) describes.
2. Do not say a weekly payment, a statutory benefit, or a damages lump sum is free of income tax.
3. Do not write advice for the client to send or rely on.
4. Leave the ordinary-income question blank.

## Notes

- These are suggested working checks. Confirm the required checking with the responsible lawyer before work starts; the checking approach does not establish permission to use AI.
- If a figure is copied into a document filed in court, the lawyer checks that court's generative-AI practice note. The opened notes are the New South Wales Supreme Court page for Practice Note SC Gen 23, the Victorian Supreme Court news page for Practice Note SC Gen 25, and the Law Society of NSW court-protocols page. The practice-direction PDFs were not opened.

## Sources

- [Income Tax Assessment Act 1997 (Cth) s 118-37](https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s118.37.html) (checked 2026-10-23)

## Forms and precedents for this task

| Form or precedent | Kind | AI level | Summary |
| --- | --- | --- | --- |
| [Client checklist after a personal injury settlement](https://ailawframework.com/precedents/personal-injury-and-compensation/after-settlement-client-checklist.md) | Checklist | Yellow | What a client does after a personal injury settlement is signed: Medicare, Centrelink, the NDIS, tax, and money held for a child. It does not replace the notices sent before settlement. |

Signed-in accounts can read the full text of each one.

## Jurisdiction versions

| Jurisdiction | Level |
| --- | --- |
| [Victoria](https://ailawframework.com/practice/personal-injury-and-compensation/check-the-capital-gains-treatment-of-compensation-or-damages/victoria.md) | Yellow |
| [New South Wales](https://ailawframework.com/practice/personal-injury-and-compensation/check-the-capital-gains-treatment-of-compensation-or-damages/new-south-wales.md) | Yellow |
| [Queensland](https://ailawframework.com/practice/personal-injury-and-compensation/check-the-capital-gains-treatment-of-compensation-or-damages/queensland.md) | Yellow |

*Practice guidance for planning and review. Confirm current primary sources and the requirements of the actual matter. This is general information, not legal advice.*