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Edited version of your written advice
Authorisation Number: 1012868569346
Date of advice: 28 August 2015
Ruling
Subject: Income - ordinary concepts
Question:
Is the payment of your leave entitlements assessable income in the financial year when it was received?
Answer:
Yes
This ruling applies for the following period:
Year ended 30 June 2015
This scheme commenced on:
1 July 2014
Relevant facts:
You were employed by an entity.
You were paid your leave entitlements before you ceased your employment.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Subsection 6-5(2).
Income Tax Assessment Act 1997 Subsection 6-5(4).
Reasons for Decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
In determining the basis of derivation of income, paragraph 42 of Taxation Ruling 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.
There have been several cases in the Administrative Appeals Tribunal on this point:
• In Case V163 88 ATC 1081, payments relating to accumulated annual leave and long service leave were assessable in the income year in which they were received (1984/85) although the taxpayer did not go on leave until the following income year.
• In Case P93, 82 ATC 444, taxpayer received an advance salary payment in May 1980 to cover leave that extended from May to August 1980. The Commissioner included the whole of the advance payment in the taxpayer's assessable income for the year ended 30 June 1980. The taxpayer claimed that as a matter of equity the assessability of the payment should be spread over the 1980 and 1981 years. The taxpayer's taxable income was greatly reduced in the 1981 year as a consequence of his retirement from employment in that year and therefore the inclusion of the whole of the advance payment in his assessable income for the 1980 year imposed a substantial additional tax burden on him. The advance salary payment was properly assessable in the year it was received, i.e., in the 1980 year. The taxpayer could not gain relief from the tax liability imposed on him solely on equitable grounds.
Similarly in your case, the amount for your unused leave entitlements is included in your assessable income under section 6-5 of the ITAA 1997 in the financial year when the amount was received.