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Edited version of private ruling
Authorisation Number: 1011680169792
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Subject: Income received in arrears
Questions
1. Is the refund amount paid to you as invalid superannuation contributions assessable as salary and wages at the time of receipt?
Answer: Yes
2. Are you entitled to an income in arrears tax offset for the financial year ended 30 June 2011?
Answer: Yes
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
You commenced employment with a company after you turned 75 years of age.
You decided to salary sacrifice all of your wages into a superannuation fund.
Your salary sacrifice superannuation contributions continued for 6 years.
After 6 years, your superannuation fund advised that due to your age you could no longer contribute to the superfund due to Commonwealth legislation.
The superannuation fund refunded 6 years of your wages in 1 payment.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 159ZR
Ruling
Income
Salary and wages are income according to ordinary concepts. An amount received as a lump sum representing arrears of salary and wages is also ordinary income and is assessable in the year it was received. This is the case even though the payment related to an earlier income year.
The Commissioner of Taxation treats salary and wages or other employment remuneration as assessable on a receipts basis (Paragraph.42 of TR 98/1). Your refund amount of formerly salary sacrificed superannuation contributions has been refunded as they were disqualified superannuation contributions. As this amount is no longer paid to you as a fringe benefit, the amount is salary and wages in the year which it was paid to you.
In your case you have advised that the lump sum payment was for amounts accrued in the following financial years:
Year ended 30 June 2005 $x
Year ended 30 June 2006 $x
Year ended 30 June 2007 $x
Year ended 30 June 2008 $x
Year ended 30 June 2009 $x
Year ended 30 June 2010 $x
The lump sum amount payed to you in the year ended 30 June 2011 represents income derived in that year.
Lump sum in arrears offset
Individual taxpayers who receive certain income in a lump sum payment containing an amount which accrued in earlier income years may be entitled to a lump sum in arrears tax offset. The tax offset is designed to alleviate the problem of more tax being payable in the year which the lump sum is received than would have been payable if the lump sum had been taxed in each of the year in which it accrued.
Section 159ZR of the Income Tax Assessment Act 1936 states that salary or wages to the extent to which they accrued during a period ending more than 12 months before the date they are paid is income eligible for the tax offset.
In your case, some of your payment is a salary or wage amount which was accrued more than 12 months before the date on which it was paid, therefore meeting the description of an amount eligible for tax offset.