ATO Interpretative Decision
ATO ID 2010/148
Superannuation
Transitional termination payments: variation to employment contractFOI status: may be released
This version is no longer current. Please follow this link to view the current version. |
-
This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Where a life benefit termination payment is paid under an employment contract that was in force before 10 May 2006 but is worked out under a clause of the contract that was varied after 10 May 2006, is any amount of the termination payment a transitional termination payment?
Decision
No. No amount of the particular employment termination payment is specified in the contract or is calculated in accordance with the methodology specified in the contract as in force before 10 May 2006.
Facts
The taxpayer was employed under a contract that was in force before 10 May 2006. Just before 10 May 2006, the contract did not specify the amount of any life benefit termination payment to be paid in the event of the termination of the taxpayer's employment but did specify a methodology for calculating the amount of any termination payment to be made to the taxpayer.
After 10 May 2006 the contract was varied, with the pre-10 May 2006 methodology for calculating any employment termination payment to be paid to the taxpayer replaced with a new, different methodology. However, the existing employment contract was maintained.
The taxpayer's employment was terminated and the taxpayer was paid a life benefit termination payment calculated in accordance with the new methodology inserted into the contract after 10 May 2006.
Reasons for Decision
Section 82-10 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA) provides that a life benefit termination payment may be a transitional termination payment if the entitlement to the life benefit termination payment is provided for under a contract as in force just before 10 May 2006.
Subsection 82-10(3) of the ITTPA further provides that Division 82 only applies to a life benefit termination payment to the extent that the contract as in force just before 10 May 2006 specifies the amount of the payment, or a way to work out a specific amount of the payment.
This is confirmed in the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 at paragraph 4.68 as follows:
...the transitional provisions...are only available in situations where the payment was able to be determined as at 9 May 2006.
In a case such as this, the Commissioner must determine from the employment contract how the taxpayer's entitlement to the termination payment arises and how the amount payable is worked out.
First, there was only one contract of employment, not two. The variation to the terms did not result in the termination of one contract and the commencement of another.
Secondly, the Commissioner determined that the contract as at 9 May 2006 did not specify the amount of the termination payment. Hence, no amount of the actual employment termination payment made to the taxpayer could have been determined under the contract as at 9 May 2006.
Thirdly, the termination payment was calculated in accordance with the new, different methodology inserted into the contract after 10 May 2006 and no part of the payment could be said to be payable in accordance with the old methodology contained in the contract as it existed before 10 May 2006.
Consequently, no amount of the termination payment is a transitional termination payment.
Date of decision: 16 August 2010Year of income: Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010 Year ended 30 June 2011 Year ended 30 June 2012
Legislative References:
Income Tax (Transitional Provisions) Act 1997
section 82-10
subsection 82-10(1)
subsection 82-10(3)
ATO ID 2007/163
Keywords
Employment termination
ISSN: 1445-2782
| Date: | Version: | |
| You are here → | 16 August 2010 | Original statement |
| 8 May 2015 | Updated statement | |
| 23 November 2018 | Archived |