Draft Taxation Determination

TD 93/D105

Income tax: if a company ceases carrying on a business which has been transferred to an associated entity, will a payment made by that company to a former employee be an eligible termination payment as defined in subsection 27A(1) of the Income Tax Assessment Act 1936 ?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 93/140.

FOI status:

draft only - for comment

Preamble

1. Yes, provided the payment is, in fact, made in consequence of the termination of employment of the former employee, and is not excluded by the provisions of subparagraphs 27A(1)(a)(i) to (v) of the definition of eligible termination payment.

2. Taxation Ruling IT 2152 dealt with termination of employment as it related to the provisions of former paragraph 26(d). Paragraph 9 of IT 2152 included the statement:

'Where a company or other employer ceases carrying on a business which has been transferred to an associated entity, it will be accepted that the employees of the company have had their employment terminated.'

3. The relevant wording of the former paragraph 26(d), as it relates to the above statement, is similar to that in the definition of eligible termination payment in subsection 27A(1). Therefore the above statement applies equally to the eligible termination payment provisions.

Example

Ms. A, has been employed by X Pty. Ltd. as a salesperson for several years. X Pty. Ltd. is a subsidiary of Z Pty. Ltd. Z Pty. Ltd. has decided to disband the sales division of X Pty. Ltd. and transfer the employees to Z Pty. Ltd. In appreciation of Ms. A's prior service X Pty. Ltd. makes a payment to her of $10,000.

The $10,000 is an ETP.

Commissioner of Taxation
29 April 1993

References

BO CNN J 36/355/4 Vol. 1

Related Rulings/Determinations:

IT 2152

Subject References:
eligible termination payments

Legislative References:
ITAA 26(d)
ITAA 27A(1)