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ATO Interpretative Decision

ATO ID 2002/335 (Withdrawn)

Superannuation

Superannuation, retirement and employment termination: Eligible termination payment (ETP) paid to Director.
FOI status: may be released
  • This ATO ID is withdrawn as it is superseded by TR 2009/2: Income Tax: Genuine redundancy payments.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the payment of a golden handshake in consideration of past service as a director of a company treated as an eligible termination payment?

Decision

Yes - the golden handshake is an ETP under the paragraph (a) definition in subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The company intends to pay the retiring directors a golden handshake in recognition of their service as directors.

Reasons for Decision

Eligible termination payment is defined in subsection 27A(1) of the ITAA 1936. The definition states in part:

' eligible termination payment in relation to a taxpayer, means

(a)
any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer other than a payment ...'

The above definition shows that an ETP can be in relation to the termination of any employment of the taxpayer. Therefore, it must be considered whether the directorship of a company meets the definition of employment.

Employment is defined in subsection 27A(1) as:

' employment includes the holding of an office;'

Being a director is the holding of an office. As such, under subsection 27A(1) of the ITAA 1936 the termination of a directorship is a termination of employment.

A golden handshake paid to a director of a company can meet the paragraph (a) definition of an ETP.

Date of decision:  26 September 2001

Year of income:  Year ending 30 June 2002

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

Related ATO Interpretative Decisions
ATO ID 2001/529

Keywords
Eligible termination payments

Business Line:  Superannuation

Date of publication:  28 March 2002

ISSN: 1445-2782

history
  Date: Version:
  26 September 2001 Original statement
You are here 16 April 2010 Archived

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