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Edited version of your written advice
Authorisation Number: 1051385435293
Date of advice: 1 March 2019
Ruling
Subject: LSL payment on termination – Foreign employer
Question
Will the long service leave (LSL) entitlement paid on termination by a foreign employer in respect of a period of employment when you were not a resident of Australia be exempt from Australian income tax under section 83-235 of the Income Tax Assessment Act 1997?
Answer
Yes
This ruling applies for the following period:
Period ending 30 June 2019
The scheme commences on:
01 July 2018
Relevant facts and circumstances
1. You moved to country A to live.
2. You commenced work with a company.
3. You have worked continuously for this employer and intend to retire soon.
4. You will receive unused long service leave entitlements relating to a period when you were not an Australian resident.
Relevant legislative provisions
Section 83-235 of the ITAA 1997
Reasons for decision
5. Section 83-235 of the ITAA 1997 sets out the conditions under which a payment will be a tax free termination payment in respect of a foreign resident period. These are:
a) the payment is received in consequence of the termination of the person's employment in a foreign country (paragraph 83-235(a) of the ITAA 1997), and
b) the payment is not a superannuation benefit (paragraph 83-235(b) of the ITAA 1997), and
c) the payment is not a payment of a pension or annuity (whether or not the payment is a superannuation benefit) (paragraph 83-235(c) of the ITAA 1997), and
d) the payment relates only to a period of employment when the person was not an Australian resident (paragraph 83-235(d) of the ITAA 1997).
6. In your case the payment is made in consequence of termination, the payment is not a superannuation payment and is not a pension or annuity. Therefore conditions (a), (b) and (c) above is met.
7. In relation to condition (d), the payment can be tested independently from a second payment made in relation to a period when you were an Australian resident. Your employer has provided two summaries with a breakdown of the payments and what periods they relate to.
8. As the payment is for LSL made in respect of your time as a non-resident, it is tax free under section 83-235 of the ITAA 1997.
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