Draft Taxation Determination

TD 93/D179

Income tax: is a payment in lieu of notice on termination of employment an eligible termination payment under 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 94/62.

FOI status:

draft only - for comment

Preamble

1. Yes. We consider that a payment in lieu of notice is an eligible termination payment as it is made 'in consequence of' termination of employment in terms of paragraph 27A(1)(a).

Note: If the termination of employment is by reason of bona fide redundancy or under an approved early retirement scheme the payment in lieu will be treated as a concessional component. In any other situation, the payment in lieu would need to be apportioned into pre July 83 and post June 83 components depending upon the employee's period of service.

Examples:

1. An employer dismisses an employee without giving notice. Under the particular award a payment in lieu of notice must be made. The amount received as a payment in lieu is made as a consequence of termination of employment and is therefore an eligible termination payment.

2. An employer is required to give notice of termination of employment to an employee they will dismiss. When the period of notice ends, the employment will be terminated. During the period of notice the employee will continue to perform his or her duties. The remuneration received during this period is salary or wage income.

Commissioner of Taxation
15/7/93

References

BO SYD/DTD/92/23

Subject References:
ETP
in lieu of notice
termination of employment
dismissal
bona fide redundancy
approved early retirement scheme

Legislative References:
ITAA 27A(1)
ITAA 27AA(1)
ITAA 27E