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Edited version of your private ruling
Authorisation Number: 1012386446046
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Ruling
Subject: A settlement amount that will be paid under a Deed of Settlement and Release
Question
Are you required to withhold an amount from the payment that you will make to your former employee?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2013
The scheme commences on:
1 July 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
One of your former employee's employment was terminated some time during the relevant income year.
Following their termination, the employee commenced legal action which gave rise to an agreement to settle the dispute.
The terms of the settlement agreement are as set out in the terms of the Deed of Settlement and Release. You have provided a copy of this document and it forms part of the facts for the purposes of this private ruling.
The payment of the Settlement Sum will comprise a certain amount for "hurt feelings" and a certain amount for legal costs.
The terms of the agreement provide for the settlement amount to be paid to the employee net of any tax payable.
There is no part of the payment that will arise because:
· the employees role was made redundant
· the employee was entitled to payment for unused leave amounts
· the employee suffered a personal injury (not including emotional suffering or hurt)
· the employee is subject to restraint of trade restrictions
· the employee was a participant in an employee share scheme.
Further, the settlement:
· will not be paid as a pension or via an annuity
· will not be paid by a superannuation fund
· does not relate to any foreign service by the employee.
The amount has not yet been paid.
While the settlement amount will be paid, net of tax, by your insurance provider, the legal obligation to pay the settlement payment rests with you. Hence the insurance provider is paying the amount on behalf of you.
A private ruling was issued to the former employee. This private ruling has determined that the payment that they will receive is not assessable.
Relevant legislative provisions
Schedule 1 to the Taxation Administration Act 1953 Section 12-1(1A),
Schedule 1 to the Taxation Administration Act 1953 Section 357-60,
Income Tax Assessment Act 1997 Section 6-5,
Income Tax Assessment Act 1997 Section 82-130 and
Income Tax Assessment Act 1997 Section 118-37
Reasons for decision
Section 357-60 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling is binding on the Commissioner of Taxation (the Commissioner).
A private ruling has been issued to your former employee advising them that the amount that they will receive will not be assessable income and the Commissioner is bound by this private ruling.
Accordingly, as it has been determined that the amount will not be assessable income of your former employee, there is no requirement for you to withhold any amount from the amount that you pay to them.
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