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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051385435293

Date of advice: 1 March 2019

Ruling

Subject: LSL payment on termination – Foreign employer

Question

Will the long service leave (LSL) entitlement paid on termination by a foreign employer in respect of a period of employment when you were not a resident of Australia be exempt from Australian income tax under section 83-235 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

Period ending 30 June 2019

The scheme commences on:

01 July 2018

Relevant facts and circumstances

    1. You moved to country A to live.

    2. You commenced work with a company.

    3. You have worked continuously for this employer and intend to retire soon.

    4. You will receive unused long service leave entitlements relating to a period when you were not an Australian resident.

Relevant legislative provisions

Section 83-235 of the ITAA 1997

Reasons for decision

    5. Section 83-235 of the ITAA 1997 sets out the conditions under which a payment will be a tax free termination payment in respect of a foreign resident period. These are:

      a) the payment is received in consequence of the termination of the person's employment in a foreign country (paragraph 83-235(a) of the ITAA 1997), and

    b) the payment is not a superannuation benefit (paragraph 83-235(b) of the ITAA 1997), and

    c) the payment is not a payment of a pension or annuity (whether or not the payment is a superannuation benefit) (paragraph 83-235(c) of the ITAA 1997), and

    d) the payment relates only to a period of employment when the person was not an Australian resident (paragraph 83-235(d) of the ITAA 1997).

    6. In your case the payment is made in consequence of termination, the payment is not a superannuation payment and is not a pension or annuity. Therefore conditions (a), (b) and (c) above is met.

    7. In relation to condition (d), the payment can be tested independently from a second payment made in relation to a period when you were an Australian resident. Your employer has provided two summaries with a breakdown of the payments and what periods they relate to.

    8. As the payment is for LSL made in respect of your time as a non-resident, it is tax free under section 83-235 of the ITAA 1997.


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