The High Court in Howard v Commissioner of Taxation [2014] HCA 21 has found that a simple choice between the mechanism for which to assign the proceeds of litigation to a litigation funder can have significant implications for tax purposes.

The key distinction appears to be whether  the proceeds of the litigation or the underlying right to receive compensation is assigned. The High Court in Howard found that where merely the proceeds are assigned, then, despite the proceeds going to the litigation funder, those proceeds can be treated as assessable income in the hands of the winner of the litigation. If, however, the right to receive compensation had been assigned then no tax would have been payable.