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Edited version of your written advice
Authorisation Number: 1012704516750
Ruling
Subject: Assessability of income
Questions and answers:
1. Are you entitled to include income you received in the 2015 financial year in your income tax return for the year ended 30 June 2014?
No.
2. Are you entitled to a lump sum in arrears tax offset for income you received in the 2015 financial year for work you performed prior to 30 June 2014.
No.
This ruling applies for the following period:
1 July 2013 to 30 June 2015.
The scheme commenced on:
1 July 2013.
Relevant facts and circumstances:
You received payment for work you did in the 2014 financial year in the 2015 financial year.
You did the work for which you received the payment less than 12 months before the date you received the payment.
Relevant legislative provisions:
Income Tax Assessment Act 1997 - Section 6-5.
Income Tax Assessment Act 1936 - Section 159ZR
Income Tax Assessment Act 1936 - Section 159ZRA
Reasons for decision
Assessability of lump sum payments of salary and wages
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes the salary and wages they derive from all sources during a financial year. In Australia the period of a financial year is the period from 1 July in one year to 30 June the following year.
For the purposes of section 6-5 of the ITAA 1997, income in the form of salary and wages from employment is taken to have been derived at the time it is received by the taxpayer, not at the time the work was done for which the payment is received. That is, the income will be included in the assessable income of the taxpayer in the year is received, even though the income may relate to a past income period.
In some cases, an individual taxpayer who receives a lump sum containing an amount of salary and wages that accrued in earlier income years may be entitled to a lump sum in arrears tax offset (the offset) under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936).
To be eligible for the offset several conditions must be satisfied, one of which is that the payment must be a lump sum payment of eligible income (subsection 159ZRA(1)(a) of the ITAA 1936).
Eligible income for the purposes of the offset is defined in subsection 159ZR(1) of the ITAA 1936 to include salary and wages that accrued during a period ending more than twelve months before the date on which they are paid.
This means that lump sum amounts of salary and wages paid in one financial year for work carried out in a prior financial year will not be 'eligible income' for the purposes of the offset unless the work for which the lump sum was paid was carried out more than 12 months before the lump sum was paid, and certain other conditions are met.
Conclusion
The payment you received in the 2015 financial year for work you did in the 2014 financial year will be included in your assessable income in the 2015 financial year and you are not entitled to include it in your assessable income for the year ended 30 June 2014.
No part of the amount you received in the 2015 financial year for the work you did in the 2014 financial year qualifies for a lump sum in arrears offset because the payment was not an 'eligible amount' for the purposes of the offset.