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Edited version of your written advice
Authorisation Number: 5010054702862
Date of advice: 25 February 2019
Ruling
Subject: Employee termination payments
Question 1
Is the payment received by the Company, as a result of a settlement, an employment termination payment in accordance with subsection 82-130(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
This ruling applies for the following period:
Income year ending 30 June 2019
The scheme commences on:
1 July 2018.
Relevant facts and circumstances
1. Your tax representative applied for a private ruling
2. You wish to determine whether the payment is an ETP
3. You provided the information in the facts listed below.
4. The Employee terminated their employment with you on in the 2017 financial year.
5. Two years after termination a claim was made in relation to alleged underpayment of wages.
6. Proceedings commenced and it was decided to settle outside of court as legal fees were going to exceed the cost of going to court. An amount was paid to settle all claims without the Company accepting any liability in relation to any of the claims.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 82-130
Income Tax Assessment Act 1997 section 82-135
Reasons for decision
Employment termination payment
1. A payment is an employment termination payment (ETP) if the payment satisfies all the requirements in section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997).
2. 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 that termination (but see subsection (4)); and
(c) it is not a payment mentioned in section 82-135.
3. In this case, the lump sum payment (the Payment) was made to the Employee following a settlement with the Company. These proceedings were instigated more than two years after the employee resigned from his position with the Company.
4. In addition to meeting the other conditions for a payment to be an ETP, paragraph 82-130(1)(b) of the ITAA 1997 specifies that a payment must be received within 12 months of the termination of employment, unless subsection 82-130(4) of the ITAA 1997 applies to allow the exemption from the 12 month rule. In this case the payment was received more than 12 months after the end of termination.
5. In this case the exemption to the 12 month requirement cannot apply as the proceedings in relation to the underpayment of wages did not commence with 12 months after termination.
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