---
title: "Flag the capital-gains disregard and leave ordinary income blank"
url: "https://ailawframework.com/practice/personal-injury-and-compensation/check-the-capital-gains-treatment-of-compensation-or-damages/new-south-wales"
type: "task_jurisdiction_version"
site: "AI Law Framework"
id: "A21-DM20261023-5-NSW"
practice_area: "Personal Injury & Compensation (workers compensation, CTP/TAC, medical negligence)"
tier: "yellow"
lawyer_review: "required"
jurisdictions: ["NSW"]
last_reviewed: "2026-10-25"
---

# Flag the capital-gains disregard and leave ordinary income blank

> Flag a compensation receipt against the capital-gains disregard in section 118-37, and leave ordinary-income questions blank. Do 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/new-south-wales  
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 | Flag a compensation receipt against the capital-gains disregard in section 118-37, and leave ordinary-income questions blank. Do not write tax advice to the client. |
| What the lawyer must review | The disregard is of a capital gain or loss, not of ordinary income Do not decide that a weekly benefit or a lump sum is income Do not write tax advice for the client |
| Written for | New South Wales |
| Applies to | [Check the capital gains treatment of compensation or damages](https://ailawframework.com/practice/personal-injury-and-compensation/check-the-capital-gains-treatment-of-compensation-or-damages.md) |

## Checking plan

**Verify against sources**

The flag records the capital-gains disregard. Whether any receipt is ordinary income is left blank.

- What the AI does: Flag a compensation receipt against the capital-gains disregard in section 118-37, and leave ordinary-income questions blank. Do not write tax advice to the client.
- What the lawyer does: Decide whether the disregard applies, and what is ordinary income.
- Who reviews: Lawyer competent in this practice area
- Basis: Checked against the linked sources on 23 October 2026. Confirm the current instrument before reliance.

## Checks the lawyer makes

1. Section 118-37(1)(a) disregards a capital gain or capital loss from a CGT event relating directly to compensation or damages received for any wrong or injury suffered in the person's occupation, or for any wrong, injury or illness the person or a relative suffers personally.
2. The same disregard can apply to compensation or damages a trustee receives for a beneficiary, other than a trustee of a complying superannuation entity: section 118-37(1)(b). Do not apply that paragraph unless the lawyer says the receipt is by a trustee.
3. The section does not say that a weekly statutory benefit, a workers compensation payment, or a damages lump sum is, or is not, ordinary income. Leave that question blank.
4. The flag is not advice to the client. It does not calculate tax.

## Notes

- Health and wage records stay in a firm-controlled tool. The lawyer applies ASCR r 9 and APP 11, and decides whether any breach is notifiable under the Privacy Act 1988 (Cth).
- No ruling was opened on whether a particular New South Wales benefit is ordinary income.

## Practical guide

Jurisdiction: New South Wales

**Deliverable**: A flag that the capital-gains disregard may apply, with ordinary income left blank.

**Inputs**

- The receipt the lawyer has identified
- Whether the lawyer says it is compensation or damages for a personal injury

**Example**: Illustrative example: The receipt is a damages lump sum for injury. The flag cites section 118-37(1)(a). The ordinary-income cell stays blank.

**Stop and escalate when**

- The tool would tell the client the lump sum is tax-free.
- The receipt is not compensation or damages for injury.

Checked 2026-10-23.

## Sources

- [Income Tax Assessment Act 1997 (Cth), section 118-37](https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s118.37.html) (checked 2026-10-23)
- [Motor Accident Injuries Act 2017 (NSW), in force from 10 July 2026, section 4.5](https://legislation.nsw.gov.au/view/whole/html/inforce/current/act-2017-010) (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.

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