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Edited version of your written advice
Authorisation Number: 1012729431801
Ruling
Subject: Employment termination payment.
Question
Will the amount to be paid to the taxpayer be an employment termination payment (ETP) in accordance with 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods
Income year ending 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts and circumstances
Your client was employed by the Employer.
Your client's employment was terminated during the 2012-13 income year due to redundancy.
Your client took legal action against the Employer in the 2013-14 income year, however the dispute was not resolved until after 12 months of the employment termination.
The Deed of release was due to be signed in the 2014-15 income year.
Your client will therefore receive a payment more than 12 months after their employment termination.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 82-130(1).
Income Tax Assessment Act 1997 Subsection 82-130(4).
Income Tax Assessment Act 1997 Subsection 82-130(5).
Reasons for decision
Summary
In considering whether the amount received by your client is an employment termination payment, the Commissioner has determined that they are exempt from the 12 months rule stated in subsection 82-130(1)(b) of the ITAA 1997.
Detailed reasoning
A payment is an employment termination payment if it satisfies all the requirements in section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997) and is not specifically excluded under section 82-135 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.
Payment is received no later than 12 months after that termination
The second condition for the payment to meet the criteria as an employment termination payment requires the payment in question be received within twelve months of the employee's termination (paragraph 82-130(1)(b) of the ITAA 1997), unless covered by a determination exempting them from the 12 month rule. Subsection 82-130(4) and subsection 82-130 (5) of the ITAA 1997 states:
Paragraph (1)(b) does not apply to you if:
(a) you are covered by a determination under subsection (5) or (7); or
(b) the payment is a *genuine redundancy payment or an *early retirement scheme payment.
The Commissioner may determine, in writing, that paragraph (1)(b) does not apply to you if the Commissioner considers the time between the employment termination and the payment to be reasonable, having regard to the following:
(a) the circumstances of the employment termination, including any dispute in relation to the termination;
(b) the circumstances of the payment;
(c) the circumstances of the person making the payment;
(d) any other relevant circumstances.
In this case, the payment was made to your client after 12 months of employment termination due to legal action between your client and the employer. You have also stated that while legal action commenced immediately after the termination, it took over 12 months for there to be a result. Legal action commenced in the 2013-14 income year and the Deed of Release was expected to be signed during 2014-15 income year. The Commissioner considers that the time between the employment termination and the payment to be reasonable as it is reasonable to expect legal action to take time to be resolved. As such, paragraph (1)(b) does not apply to your client, and they are exempt from the 12 month rule.
It is evident that the payment meets the other conditions in subsection 82-130(1) of the ITAA 1997.
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