Edited version of your private ruling

Authorisation Number: 1012376533438

Ruling

Subject: Employment termination payments

Question

Will the Commissioner of Taxation (the Commissioner) treat an employment termination payment received by your client after 30 June 2012 as a transitional termination payment (TTP) for the purposes of section 82-10 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997)?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

27 June 2012

Relevant facts

In the 2011-12 income year, your client was advised by the Employer that their position was to be made redundant.

Your client accepted the decision to make their position with the Employer redundant and requested that their entitlements be paid to them before 30 June 2012.

The Employer issued your client with a letter of termination which included attachments stating that the termination payment would be treated as a transitional termination payment (TTP).

Subsequently, your client was advised by the Employer that they have missed their automated pay run by one day and they could not make your client's termination payment by 30 June 2012.

Your client requested that the Employer make a manual payment in order to meet the 30 June 2012 deadline, but there was no response from the Employer.

The ETP was made by the Employer after 1 July 2012.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 82-130

Income Tax Assessment Act 1997 Subsection 82-130(1)

Income Tax Assessment Act 1997 Subsection 82-130(2)

Income Tax (Transitional Provisions) Act 1997 Section 82-10

Income Tax (Transitional Provisions) Act 1997 Subsection 82-10(1)

Income Tax (Transitional Provisions) Act 1997 Subsection 82-10(2)

Reasons for decision

Summary of decision

The Commissioner does not have discretion to extend the date by which an ETP to which section 82-10 of the ITTPA 1997 applies can be made. Therefore, the ETP received by your client after 1 July 2012 is not a TTP for the purposes of section 82-10 of the ITTPA 1997.

Detailed reasoning

Employment termination payments

Payments made in consequence of the termination of a taxpayer's employment are known as employment termination payments (ETPs). Employment termination payments are defined in section 82-130 of the ITAA 1997. Subsection 82-130(1) of the ITAA 1997 states:

A payment is an employment termination payment if:

(a) it is received by you:

(i) in consequence of the termination of your employment; or

(ii) after another person's death, in consequence of the termination of the other person's employment; and

(b) it is received no later than 12 months after the termination (but see subsection (4)); and

(c) it is not a payment mentioned in section 82-135.

In accordance with subsection 82-130(2) of the ITAA 1997, if an ETP is received by a person in consequence of the termination of their employment, it is known as a life benefit termination payment.

To be an employment termination payment, the amount received by the taxpayer must satisfy all three conditions set out in subsection 82-130(1) of the ITAA 1997.

The first condition requires that there is a payment received by the taxpayer in consequence of the termination of their employment.

The phrase 'in consequence of' is not defined in the ITAA 1997. However, the words have been interpreted by the courts in several cases. The Commissioner has also issued Taxation Ruling TR 2003/13 (TR 2003/13) (which discusses the meaning of the phrase).

Paragraph 5 of TR 2003/13 states:

the Commissioner considers that a payment is made in respect of a taxpayer in consequence of the termination of the employment of the taxpayer if the payment follows as an effect or result of the termination. In other words, but for the termination of employment, the payment would not have been made to the taxpayer.

In this case, your client became entitled to a payment because their position with the Employer was made redundant. Therefore, it is accepted that the payment made to your client was made in consequence of your client's termination of employment. That is, the payment would not have been made if there was no termination of employment.

The employment termination payment is a life benefit termination payment as defined in subsection 82-130(2) of the ITAA 1997.

Transitional termination payments

In accordance with subsection 82-10(1) of the ITTPA, a life benefit termination payment received by a person on or after 1 July 2007 is a TTP if:

· the payment is received by a person because the person is entitled to it under a written contract, a law of the Commonwealth, a State, a Territory or another country, an instrument under such a law or a workplace agreement within the meaning of the Workplace Relations Act, and

· the entitlement is provided for under that contract, law, instrument or agreement as in force just before 10 May 2006.

However, subsection 82-10(2) of the ITTPA states specifically that a payment received by a taxpayer on or after 1 July 2012 is not a TTP. There is no provision in the ITTPA 1997 or the ITAA 1997 that allows the Commissioner to extend the time in which a TTP can be made.

As your client received their ETP after 1 July 2012, and the Commissioner has no discretion to extend the date by which a TTP can be made beyond 1 July 2012, the ETP received by your client is not a TTP for the purposes of section 82-10 of the ITTPA 1997.

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