Overseas Legal Settlements
There are nearly one million Australian citizens living overseas, and unfortunately a very small proportion of them become involved in accidents and incidents that result in them receiving damages settlements, to compensate them or their families for death or injury.
It is important that expats appreciate that the manner in which foreign damages settlements are arranged can have significant Australian tax implications and that seeking professional advice before any agreement or settlement is concluded is very much recommended. This is particularly the case where the damages settlement involves individuals being awarded an income (annuity) stream rather than a lump sum.
One example relates to what are called "structured settlements" in the United States. A structured settlement involves settling a claim for personal injury compensation so that instead of the injured person, or perhaps a surviving family member, receiving a lump sum settlement they receive all or part of their compensation in the form of periodic payments - effectively an annuity - for life or a specified period.
This approach can be tax effective in the US, and indeed in Australia where, subject to meeting certain requirements, the payments can be tax exempt - although they must be made to the injured party, and it is not possible to have a structured settlement where the injured person has died.
However, regular payments made from an offshore entity, including a foreign insurance company, are unlikely to attract a tax exemption in Australia and it will often be more tax efficient to arrange a domestic Australian annuity or look at investing the lump sum in other long-term, tax effective instruments, such as insurance bonds to provide an income stream. Options should be explored prior to any settlement being concluded in a damages claim.
If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly. You will receive a fee quotation in advance of any advice or services being provided.