Edited version of private advice

Authorisation Number: 1012631012034

Ruling

Subject: Refund of tax withheld

Question

Are you entitled to a full or partial refund of the tax withheld from payments made to you by Entity X during the year ended 30 June 2011?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You were employed by Entity X.

Your employment with Entity X was terminated.

Entity X decided to pay you and your spouse an amount over a number of years. You nominated a financial institution account operated by Entity Y in which the payments were to be paid.

For the 2010-11 financial year Entity X issued you with two payment summaries. One payment summary showed salary and wages, unused annual leave (lump sum payment A), unused long service leave (lump sum payment B) and tax withheld.

The second was an employment termination payment (ETP) summary which showed a taxable component, a tax free component and tax withheld.

The payment summaries were received after you had lodged your tax return which contained amounts for allowances, gross interest and total taxable income.

You requested a private ruling as to whether the payments from Entity X were assessable income. The private ruling issued to you advised:

• the unused long service leave and unused annual leave are assessable income,

• the amount shown on the ETP summary was not an ETP but was, instead, an employer pension which was assessable.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 4-10
Income Tax Assessment Act 1997 Section 4-15
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 83-10
Income Tax Assessment Act 1997 Section 83-80
Income Tax Rates Act 1986
Taxation Administration Act 1986 Schedule 1 Division 12

Reasons for decision

Summary

You are not entitled to a full or partial refund of the tax withheld from payments made to you by Entity X as these amounts are required to be retained and offset against any liability created by the inclusion of the payments in your tax return.

Detailed reasoning

An Australian resident taxpayer pays tax on their taxable income for an income year. The amount of taxable income is calculated as assessable income less allowable deductions. The tax on taxable income is calculated in accordance with the provisions of the Income Tax Rates Act 1986.

Entities which make certain payments to an Australian taxpayer are required to withhold a portion of the gross payment and submit that portion to the ATO. The amount of tax withheld is reported on a payment summary and used to offset the amount of tax payable on the taxpayer's taxable income in that financial year. This affects whether the taxpayer is required to make an additional payment to the ATO to cover an excess tax liability or is entitled to receive a refund.

The calculation for determining the amount a taxpayer is required to pay, or be refunded by, the ATO is as follows:

Tax on taxable income

less tax rebates and offsets

plus Medicare levy and surcharge (if applicable)

less Pay as you go credits and other entitlements [this includes amounts withheld from payments]

equals amount refundable to, or payable by, the taxpayer.

In the private ruling issued to you, you were advised that the payments received from Entity X formed part of your assessable income and, therefore, should be included in calculating your assessable income and the amounts of tax withheld will offset the tax on taxable income.

Salary and wages are assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

An amount paid to you for unused annual leave is included in your assessable income under section 83-10 of the ITAA 1997.

Five per cent of an amount paid for unused long service leave is included in your assessable income under section 83-80 of the ITAA 1997.

Weekly payments from Entity X

The weekly payments from Entity X were recorded on an ETP summary. The private ruling issued stated that these payments were not an ETP but were, instead, an employer pension. As an employer pension, the full amount of the payments is assessable under section 6-5 of the ITAA 1997.

Payees, generally, have the choice of which financial institution account they have payments made into. The fact that you have requested the payments from Entity X to be paid into a financial institution account owned by Entity Y, an income tax exempt entity, does not alter the nature of the payments from being assessable to exempt or non-assessable income. In this instance, the Entity Y is acting as your agent accepting the payments on your behalf before passing them to you.

The tax treatment of a payment is dependent upon the relationship between you and the paying entity and/or the reason for the payment being made. It is not affected by the type of account the payment is made to or from.

Tax withheld

Entity X withheld amounts from the payments made to you. These amounts are shown on the payment summaries as total tax withheld.

Tax return for the 2010-11 financial year

Your tax return for the year ended 30 June 2010 consists of allowances and interest. It does not include any of the payments made by Entity X or the tax withheld.

To determine if you are entitled to a full or partial refund of the tax withheld from payments made to you by Entity X, you will need to amend your assessment for the year ended 30 June 2010 to include the omitted amounts.

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