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Edited version of your private ruling
Authorisation Number: 1012463388856
Ruling
Subject: Employment termination payment - genuine redundancy.
Question
Is the payment of a 'relocation allowance' an employment termination payment?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2012.
The scheme commences on:
1 July 2011.
Relevant facts and circumstances
On XX/XX/20XX, you commenced employment in a Program with ABC (the employer).
Prior to commencing the Program, you were located in the Country A.
The Program was located in Country B.
You negotiated a 'relocation allowance' with the employer to cover the costs of moving your personal belongings from Country A to whichever country you would be located after completion of the program.
The 'relocation allowance' was separate to the benefits, allowances and payments that you were entitled to on commencing the program, many of which were repayable if you voluntarily left the Program before its completion.
Shortly after commencing the program, you were informed that the Program was being dismantled and your position would be made redundant.
Your effective termination date was YY/YY/20YY.
The payments you received on termination included:
· a gross genuine redundancy payment of $A; and
· a gross relocation allowance of $B (the payment).
The relocation allowance was categorised by the employer as part of 'normal wages' and taxed at your marginal income tax rate for the relevant income tax year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 82-130.
Reasons for decision
Summary
The relocation allowance of $B is not an employment termination payment as it has not been made 'in consequence' of the termination of your employment. Accordingly the payment has been correctly classified as part of your 'normal wages' and correctly treated on your payment summary.
Detailed reasoning
Employment termination payment
A payment made to an employee is an employment termination payment if the payment satisfies all the requirements under section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997), and is not specifically excluded under section 82-135.
Subsection 82-130(1) of the ITAA 1997 states that:
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 that termination (but see subsection (4)); and
(c) it is not a payment mentioned in section 82-135.
Subsection 82-130(2) of the ITAA 1997 states:
A life benefit termination payment is an employment termination payment to which subparagraph (1)(a)(i) applies.
Failure to satisfy any of the three conditions in section 82-130(1) of the ITAA 1997 will result in the payment not being considered an employment termination payment.
As noted in the facts, you received a gross relocation allowance of $B on the termination of your employment.
Paragraph 82-130(1)(a) of the ITAA 1997 requires that a termination payment be made in consequence of the termination of employment of the taxpayer. While the phrase 'in consequence of' is not defined in the ITAA 1997, the Commissioner considers that a payment will be made 'in consequence of' the termination of employment for the purposes of subparagraph 82-130(1)(a)(i), if the payment follows as an effect or as a result of the termination of employment. Note that this does not simply connote a temporal connection between the payment and termination of employment, but rather that but for the termination of employment the payment would not have been made to the taxpayer.
Based on the information you have provided, the relocation allowance was negotiated before the commencement of the Program, and payable to you at the end of the Program to cover the costs of moving your personal belongings from Country A to wherever you would subsequently be located. Accordingly, the termination of your employment was not a condition of, or occasion of, your entitlement to the payment. You would have been entitled to the payment of the relocation allowance regardless of whether or not you had continued or terminated your employment with the employer. The fact that your position was made redundant, and the payment made at the time you terminated employment, does not alter the fact that you were entitled to the payment for reasons other than the termination of your employment. As noted above, a temporal sequence alone is not determinative as to whether a payment 'follows as an effect or result of' the termination of employment.
Consequently, the relocation allowance does not contain a sufficient nexus between the payment and termination of employment so that the payment can be said to be made 'in consequence' of the termination of employment. As the payment has not been made in consequence of the termination of employment, it has failed to satisfy paragraph 82-130(1)(a) of the ITAA 1997.
As the payment has failed to satisfy paragraph 82-130(1)(a) of the ITAA 1997 it is not necessary to discuss whether you meet the other conditions under section 82-130 of the ITAA 1997. Accordingly, the payment of $B is not an employment termination payment under section 82-130 of the ITAA 1997. The payment has been correctly classified as 'normal wages' and correctly treated on your payment summary to be taxed at your marginal income tax rate for the relevant income tax year.
Conclusion
The payment is not an employment termination payment as it has not been made 'in consequence' of the termination of your employment, within the meaning of paragraph 82-130(1)(a) of the ITAA 1997. The payment is to be included in your income tax assessment as normal income and taxed at your marginal rate. Accordingly, the amount has been correctly classified and correctly treated on your payment summary.
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