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Edited version of your private ruling
Authorisation Number: 1012527242824
Ruling
Subject: Employment Termination Payment
Question 1
In which income year should the taxpayer include an employment termination payment in their assessable income?
Answer
2012-13 financial year.
This ruling applies for the following periods:
Year ending 30 June 2013
The scheme commences on:
1 July 2012.
Relevant facts and circumstances
Your Client had his/her employment terminated during the 2011-12 financial year.
Two employment termination payments were made to your client from the employer in the 2012-13 financial year.
Both payments had a taxable component in addition to amounts being withheld for tax.
Both payments were made in relation to the termination of your client's employment with the employer in the 2011-12 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 82-10.
Income Tax Assessment Act 1997 Section 82-130.
Income Tax Assessment Act 1997 Subsection 82-130(1).
Income Tax Assessment Act 1997 Subparagraph 82-130(1)(a)(i).
Income Tax Assessment Act 1997 Subparagraph 82-130(1)(b).
Income Tax Assessment Act 1997 Subparagraph 82-130(1)(c).
Income Tax Assessment Act 1997 Section 82-135.
Reasons for decision
Summary
The employment termination payments received by your client are to be included as assessable income in the 2012-13 financial year as income derived from employment are assessable on receipt even though they may relate to a past or future income period.
Detailed reasoning
Income year in which payment is assessable
As the payments are employment termination payments, the entire amount will form part of your client's assessable income.
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.
A payment made in relation to the termination of employment is regarded as ordinary income.
Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income. Paragraph 42 of the ruling 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.
Your client's employment was terminated during the 2011-12 financial year. However, both employment termination payments were made during the 2012-13 financial year. Therefore, the payments are assessable to your client in the year ended 30 June 2013, as this is the financial year your client received the payments.