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Edited version of your written advice
Authorisation Number: 1012885259047
Date of advice: 25 September 2015
Ruling
Subject: Foreign income
Question and answer
Is your employer termination payment assessable?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You worked for a number of years overseas.
You were an Australian resident for taxation purposes for the period you were working overseas.
At the end of your employment you received a payment from your employer.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 23AG
Reasons for decision
Assessable income consists of ordinary income and statutory income provided it is neither exempt nor non-assessable non-exempt income.
Subsection 6-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an amount is statutory income if it is not ordinary income but is included in assessable income by another provision.
Section 10-5 of the ITAA 1997 lists those provisions about assessable income.
Included in this list is section 82-10 of the ITAA 1997 which deals with Employment Termination Payments.
Employment termination payment
An employment termination payment, where the payment is made during the life of a taxpayer, is known as a life benefit termination payment.
_ Subsection 82-130(1) of the ITAA 1997 states that:
A payment is an employment termination payment if:
(a) it is received by you:
(i) in consequence of the termination of your employment; or
(ii) After another person's death, in consequence of the termination of the other person's employment; and
(b) it is received no later than 12 months after that termination (but see subsection (4)); and
(c) it is not a payment mentioned in section 82-135.
Therefore, it can be seen that a number of conditions need to be satisfied in order for the payment to be treated as an employment termination payment.
Failure to satisfy any of the conditions will result in the payment not being considered an employment termination payment.
Paid as a consequence of the termination of employment
If the payment is received as an effect or a result from the termination of employment, the payment will be made in consequence of the termination of employment for the purposes of subparagraph 82-130(1)(a)(i) of the ITAA 1997. The termination of the payment need not be the sole or dominate cause of the payment.
The question of whether a payment is made in consequence of the termination of employment is determined by the relevant facts and circumstances of each case.
The payment is received no later than 12 months after termination
The second condition is stated under paragraph 82-130(1)(b) of the ITAA 1997. The settlement sum must be received within 12 months of the employee's termination of employment.
You meet both of the conditions above as the payment was made in consequence of the termination of your employment and the amount was received by you within 12 months of your termination of employment.
Not a payment mentioned in section 82-135 of the ITAA 1997
Certain payments made on termination of employment are excluded from being an employment termination payment under section 82-135 of the ITAA 1997. These payments include foreign termination payments.
A payment received by you is not assessable income and is not *exempt income if:
(a) it was received in consequence of the termination of your employment in a foreign country; and
(b) it is not a *superannuation benefit; and
(c) it is not a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and
(d) it relates only to a period of employment when you were not an Australian resident.
The payment you received does not meet the conditions under section 83-235 of the ITAA 1997 as you were an Australian resident for taxation purposes for the period you were working overseas.
The payment of $XXXX is assessable income and is required to be declared at item 4 on your tax return.