In March this year I spent $25,000 in legal fees while suing my previous employer who, during my employment time, consistently paid me 25% less than a male colleague who held an equivalent position and performed exactly the same functions as me. We ended up settling the dispute out of Court and I agreed to receive a payment of $350,000 in arrears and moral damages, which were paid in a lump sum on 15 June this year. This is a significant amount and I don't want to have trouble with the ATO. Could you please provide me with a separate letter of advice explaining the income tax consequences related to the legal fees I incurred and the payment I received. 

Required: 

Prepare a letter of advice explaining the tax consequences related to the legal fees incurred by Jenny and the lump sum payment received in connection with the lawsuit for the year ending 30 June 2019, applying legislation and case law to support your letter. Australian taxation system.

Answer rating: 100% (QA)

ANSWER If you are able to get a settlement thats significantly less than your total debts owed you w... View the full answer