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Edited version of your written advice
Authorisation Number: 1012737119261
Ruling
Subject: Lump sum payments
Question 1
Is the lump sum payment you received from your employer assessable in the 2014-15 income year?
Answer
Yes.
Question 2
Is the retirement bonus you received from your employer assessable in the 2013-14 income year?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2013.
Relevant facts and circumstances
You were employed the Employer prior to the commencement of the 2013-14 income year up until a date during the 2013-14 income year, when you terminated your employment.
The Employer gifted you an amount a retirement bonus during the 2013-14 income year.
You had a dispute with the Employer regarding the payment of your work entitlements. This dispute was taken an independent arbitrator (the Arbitrator).
The Arbitrator determined during the 2014-15 income year that the Employer underpaid you. This included underpayments in relation to leave you were entitled and work you had performed.
You have provided correspondence from the Arbitrator which states that they first informed the Employer on a date during the 2014-15 income year, verbally and via email, of the decision and the underpayment amount.
The Employer paid you an amount in the form of a cheque which a date in the 2013-14 income year.
You state that you received the cheque for this amount during the 2014-15 income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5.
Income Tax Assessment Act 1997 section 6-10.
Income Tax Assessment Act 1997 section 82-130.
Income Tax Assessment Act 1997 section 82-135.
Income Tax Assessment Act 1997 paragraph 82-135(c).
Income Tax Assessment Act 1997 paragraph 82-135(d).
Income Tax Assessment Act 1997 paragraph 82-135(e).
Reasons for decision
Summary of decision
The lump sum payment you received is from the Employer is assessable in the 2014-15 income year.
The retirement bonus you received from the Employer is an employment termination payment which is assessable in the 2013-14 income year.
Detailed reasoning
Under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) assessable income includes income according to ordinary concepts (ordinary income). In your case, subsections 6-5(2) and (4) are relevant as they state:
6-5 (2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
…
6-5 (4) In working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
Further, section 6-10 of the ITAA 1997 states in part:
6-10(1) Your assessable income also includes some amounts that are not ordinary income.
Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10-5.
6-10(2) Amounts that are not ordinary income but are included in your assessable income by provisions about assessable income are called statutory income.
…
6-10(3) If an amount would be statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct.
6-10(4) If you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia.
Accordingly, sections 6-5 and 6-10 of the ITAA 1997 show that assessable income, regardless of whether it is ordinary income or statutory income, is included in the income year in which it is received.
In your case, the Arbitrator determined that an amount was owed to you from the Employer due to underpayments of leave and other work entitlements.
According to the correspondence you have provided, the Arbitrator first informed the Employer of the requirement to pay the amount during the 2014-15 income year. Therefore, it is determined that the payment of this amount was made in 2014-15 income year and is assessable income in that income year.
It is also noted that the Employer also paid you an amount as a retirement bonus (the Payment) on during the 2013-14 income year when you terminated your employment. This payment, which is a considered a gratuity, is an employment termination payment (ETP) as it satisfies subsection 82-130(1) of the ITAA 1997 which states:
A payment is an employment termination payment if:
(a) it is received by you:
(i) in consequence of the termination of your employment; or
…
(b) it is received no later than 12 months after the termination (but see subsection (4)); and
(c) it is not a payment mentioned in section 82-135.
As the Payment was made in the 2013-14 income year, it forms part of your assessable income for that income year.