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Ruling
Subject: Derivation of income
Question 1
Should the full amount of the gross payments which appear on the PAYG payment summary for the year ended 30 June 2011 which you received from your employer be declared as income in your tax return for that income year?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commenced on
1 July 2009
Relevant facts and circumstances
You ceased your employment with your employer during the 2009-10 financial year.
You received a payment from your former employer after ceasing your employment but before 30 June 2010
When you received your PAYG payment summary for the year ended 30 June 2010 from your former employer you assumed the payment received after ceasing employment was included on that payment summary.
During the 2010-11 financial year you received a back payment from your former employer.
You received a PAYG payment summary for the year ended 30 June 2011 from your former employer.
The gross payments total included:
the payment received after ceasing employment but before 30 June 2010, and
the payment received during the 2010-11 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Summary
Salary and wage income is assessable in the financial year in which it is received. Thus, the payment received prior to 30 June 2010 is assessable in the 2009-10 financial year. The payment received in the 2010-11 financial year is assessable in that year.
Detailed reasoning
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Salary and wage income is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997.
Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income. Paragraph 42 of TR 98/1 states that income from employment would normally be assessable on a receipts basis. Salary, wages or other employment remuneration are assessable on receipt even though they relate to a past or future income period.
In your case, you received a payment from your former employer after ceasing employment but before 30 June 2010. Another payment was received in the 2010-11 financial year. These two payments were combined to appear on a PAYG payment summary for the year ended 30 June 2011.
As the first amount was received during the 2009-10 financial year, it should be included in your assessable income for that year.
The second payment should be included in your assessable income for the 2010-11 financial year.