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Ruling

Subject: Employment termination payments

Reasons For Decision.

Question

Is a payment in lieu of long service leave received on termination of employment an employment termination payment (ETP) for the purposes of section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period:

Income year ended 30 June 2012

The scheme commenced on:

During the income year ended 30 June 2012.

Relevant facts and circumstances

During the 2012 income year, after less than ten years service, you resigned from employment with your former employer (the Employer).

As a consequence, the Employer paid you a termination payment which included an amount said to be a 'Termination Payment in lieu of Long Service Leave' (LSLP).

You state that the LSLP was discretionary as, in accordance with the Employer's enterprise agreement (the Enterprise Agreement), you were not entitled to long service at the time of the termination.

The Enterprise Agreement provides that a payment in lieu of long service leave will be paid when the staff member's employment is terminated in certain circumstances, including:

(a) At the initiative of the staff member or the University:

(i) after 10 years' service, including recognised service with another employer; or …

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 82 130

Income Tax Assessment Act 1997 Subsection 82-130(1)

Income Tax Assessment Act 1997 Section 82-135

Income Tax Assessment Act 1997 Subsection 82-135(1)

Income Tax Assessment Act 1997 Section 83-75

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

In accordance with subsection 82-130(1) of the ITAA 1997, a payment is an employment termination payment (ETP) if:

a) it is received by you in consequence of the termination of your employment no later than 12 months after the termination (although the 12 month restriction does not apply in certain circumstances); and

b) it is not a payment mentioned in section 82-135 of the ITAA 1997.

Subsection 82-135(1) of the ITAA 1997 list the payments that are not ETPs and at paragraph (d) includes 'unused long service leave payments'.

By virtue of subsection 995-1(1) of the ITAA 1997, 'unused long service leave payments' are defined in section 83-75 of the ITAA 1997 which provides that a payment that you receive in consequence of the termination of your employment is an unused long service leave payment if:

a) it is for long service leave you have not used; or

b) it is for long service leave to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination.

Based on the above, although you may not have been entitled to long service leave payment at the time of termination of employment, you would have been entitled to it after 10 years' service (including recognised service with another employer) if you had not resigned from your employment with the Employer. Therefore, payment received on termination of employment in lieu of unused long service leave is not an ETP for the purposes of section 82-130 of the ITAA 1997.