ATO Interpretative Decision

ATO ID 2002/476

Superannuation

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer's eligible service period for the purposes of an eligible termination payment (ETP) the aggregate of the periods of employment with both an industry employer (the employer) and a trade union (the union) involved in the employer's industry?

Decision

Yes. The taxpayer's eligible service period for the purposes of the eligible termination payment (ETP) is the aggregate of the periods of employment with both the employer and the union under subsection 27A(1) Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer resigned from the employer to take up a position with the union. Under the relevant State Award, the union was required to accept responsibility for unused sick and annual leave payments arising from the taxpayer's employment with the employer. The union also credited the taxpayer with a pro-rata amount of long service leave. That is, the union treated the taxpayer as if their employment with the union commenced from the date they joined the employer. Furthermore, the taxpayer was able to remain a member of the employer's superannuation fund after commencing employment with the union. On leaving employment with the union, the union paid the taxpayer an ETP.

Reasons for Decision

Periods of employment with a related employer can be taken into consideration in calculating the eligible service period of an employee provided the ETP is made in recognition of the earlier employment and the related employment. The term 'eligible service period' is defined under subsection 27A(1) (Income Tax Assessment Act 1936) to include '... the aggregate of the periods, of the employment to which the relevant eligible termination payment relates'.

The commentary to the definition of 'eligible service period' in the Explanatory Memorandum to the Income Tax Assessment Amendment Act (No.3) 1984 stated an example where a taxpayer had been employed by several companies in a group. The termination payment was made in recognition of the total period of service of the taxpayer within the group, and the eligible service period was that total period.

Similarly, it is stated in Taxation Ruling IT 2168 that where an ETP is made in consequence of the termination of a person's employment, the eligible service period is the period, or aggregate of the periods, of the employment to which the ETP relates.

The employer and the union are clearly related employers. Given this fact, and since the ETP was paid in respect of the aggregate service with both the employer and the union, the eligible service period for the purposes of the ETP is the aggregate of the taxpayer's period of employment with the employer and with the union.

Legislative References:
Income Tax Assessment Act 1936
   subsection 27A(1)

Related Public Rulings (including Determinations)
IT 2168

Other References:
Explanatory Memorandum to the Income Tax Assessment Amendment Act (No.3) 1984
Previously released as CDS10159

Keywords
Eligible termination payments
ETP service period

Business Line:  Superannuation

Date of publication:  30 April 2002

ISSN: 1445-2782