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Edited version of private advice
Authorisation Number: 1051829582104
Date of advice: 27 April 2021
Ruling
Subject: Foreign termination payment
Question
Does section 83-235 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the lump sum payment made to you in consequence of the termination of your employment overseas?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are an Australian citizen.
You were a non-resident for a significant period.
You came back to Australia and became a resident.
Prior to your return, you had been working for a foreign employer and you ceased your employment with the employer.
You received a lump sum payment which relating to your previous employment with them.
The payment summary advised that the lump sum was the return of the employer contribution made for you in an internal social plan (Plan).
The employer contribution is only payable on the termination of your employment.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 11-55
Income Tax Assessment Act 1997 section 83-235
Reasons for decision
Section 83-235 of the ITAA 1997 applies to termination payments received where the taxpayer was a foreign resident during the period of foreign employment to which the payment relates.
Section 83-235 of the ITAA 1997 states that:
A payment received by you is not assessable income and is not exempt income if:
(a) it was received in consequence of the termination of your employment in a foreign country; and
(b) it is not a superannuation benefit; and
(c) it is not a payment of a pension or an annuity (whether or not the payment is a superannuation benefit); and
(d) it relates only to a period of employment when you were not an Australian resident.
Paragraphs (a) and (d) of section 83-235 require that for a payment to be tax-free as a foreign termination payment it must be received in consequence of the termination of the taxpayer's employment in a foreign country and that the payment relates only to a period of employment when the person was a non-resident of Australia.
In this case you received a lump sum payment in relation to your prior employment in a foreign country. You were not a resident of Australia for tax purposes for that period. The employer contribution is only payable on termination. Therefore, the payment relates solely to a period of employment when you were not an Australian resident and you received in consequence of the termination of your employment.
Further, the payment is not a superannuation benefit or payment of a pension or annuity (paragraphs (b) and (c)). It was the return of the employer contribution made to the Plan.
Consequently, in interpreting the conditions in section 83-235 of the ITAA 1997, it is considered the requirements under this section have been satisfied as the payment has been confirmed as being related solely to a period of the terminated employment during which the you were not a resident of Australia.
Accordingly, the amount is tax free and is not assessable income and not exempt income.
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