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Edited version of your written advice
Authorisation Number: 1012844901548
Date of advice: 29 July 2015
Ruling
Subject: Employment termination payment
Question
Is the payment in lieu of notice received by the Taxpayer an employment termination payment in accordance with section 82-130 of the Income Tax Assessment Act 1997?
Answer
Yes
This ruling applies for the following period
Income year ended 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts and circumstances
The Taxpayer was employed by the Employer.
The Taxpayer provided an Employment Contract (the Contract) that was held with the Employer.
The Contract states that employment may be terminated by the Taxpayer or the Employer at any time by giving a specified period's notice in writing.
In a letter the Employer advised the Taxpayer that their employment was terminated due to a restructure which rendered the Taxpayer's position redundant.
In the Letter it stated that the payment in lieu of notice, in accordance with the Contract, was increased due to the Taxpayer's age and tenure with the Employer.
The Employer met with the Taxpayer, and provided the Taxpayer the option to either leave employment immediately or work out the notice period. The Taxpayer stated that they ceased working immediately and the Employer accordingly paid out the notice period.
The Taxpayer's entitlements, paid within 12 months of the redundancy, included a payment in lieu of notice.
The Taxpayer stated that the Employer treated the payment in lieu of notice as part of salary and wages, and not as an employment termination payment (ETP).
The Taxpayer provided a copy of the payments made to them on the termination of employment and a PAYG Payment Summary - employment termination payment, which included a genuine redundancy payment.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 82-130
Income Tax Assessment Act 1997 section 82-135
Reasons for decision
Summary
The payment in lieu of notice received by the Taxpayer is an employment termination payment (ETP) as it satisfies all the relevant conditions in section 82-130 of ITAA 1997.
Employment termination payment
A payment made to an employee is an employment termination payment (ETP) if it satisfies all the relevant conditions set out in section 82-130 of the ITAA 1997 This section states:
82-130(1) 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.
…
Section 82-135 of the ITAA 1997 includes (among others):
_ superannuation benefits;
_ the payment of a pension or annuity;
_ unused annual leave (paragraph 82-135(c)) or long service leave payments (paragraph 82-135(d)); and
_ the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83-170 of the ITAA 1997.
In view of the facts provided it is considered that the payment in lieu of notice received by the Taxpayer satisfies all the conditions for it to be treated as an ETP as the payment was:
(a) made in consequence of the Taxpayer's termination of employment;
(b) received within 12 months of the termination of employment; and
(c) is not any of the types of payment precluded from being an ETP listed in section 82-135 of the ITAA 1997.
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