Decision impact statement
Perfrement and Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: 2010/1310
Judge Name: Dr G Hughes
Judgment date: 20 April 2011
Appeals on foot:
No
Impacted Advice
Relevant Rulings/Determinations:- n/a
Subject References:
Superannuation
Life benefit termination payment
Transitional termination payment
Directed termination payment
Private ruling
Decision Outcome
Adverse
Précis
Outlines the ATO's response to this case which concerned whether a payment received by the applicant from his employer on termination of his employment was a transitional termination payment under section 82-10 of the Income Tax (Transitional Provisions) Act 1997 (the TP Act).
Brief summary of facts
The applicant started working at Mobil Oil Australia Limited (Mobil) under a contract dated 26 November 1992. The terms of employment were subject to company policies and procedures as amended from time to time, including a 1991 redundancy policy. Mobil amended this policy in May 1995, July 2005 and July 2008. The July 2008 amendment advised employees that, at law, their redundancy entitlements no longer included the option to roll over a payment into a superannuation fund.
The applicant's employment was terminated by redundancy on 30 September 2008. He asked Mobil to rollover his termination payment into a nominated superannuation fund. Mobil declined, on the basis that it was not a transitional termination payment (TTP) under section 82-10 of the TP Act, and made the redundancy payment to the applicant during the 2009 income year under its then current redundancy policy.
The applicant applied for a private ruling about whether the redundancy payment was a TTP. The Commissioner ruled that it was not a TTP.
Issues decided by the tribunal
The AAT decided that the redundancy payment made by Mobil to the applicant by was a TTP under section 82-10 of the TP Act (paragraph 36), as the entitlement to the payment was provided for under a contract in force before 10 May 2006. The Tribunal rejected the Commissioner's submission that the applicant's entitlement to the payment arose under the July 2008 amendment to Mobil's redundancy policy. That amendment merely advised employees about the effect of newly introduced tax laws, but did not change the method of compensation determined under the July 2005 policy amendment (paragraphs 34 and 35).
The AAT also commented, in paragraph 37, that, as the payment made to the applicant was a TTP, the provisions of section 82-10F of the TP Act are enlivened, as no pre-payment statement had yet been given by Mobil to the applicant. When the statement is given, the AAT noted that, under subsection 82-10F(2), the applicant can choose within 30 days to direct the payment be made to a superannuation fund.
ATO view of Decision
The ATO accepts that the decision of the AAT was reasonably open to it on the face of the contractual arrangement set out in the private ruling.
As the private ruling given to the applicant was confined to the question of whether the redundancy payment received by the applicant was a TTP under section 82-10 of the TP Act, the AAT's decision correctly only dealt with the application of that section to the payment. Accordingly, the AAT's comments in paragraph 37 of its reasons for decision about the operation of section 82-10F of the TP Act are not part of the AAT's decision.
Before a TTP is paid to an individual, section 82-10E requires the payer to give a pre-payment statement to the individual, setting out the taxable and tax free components of the payment. Within 30 days of receipt of the statement, the individual can direct the payer under section 82-10F to make the payment to a complying superannuation fund (CSF). A payment then made to a CSF is treated under section 82-10G as not assessable income nor exempt income of the individual. Mistakenly, in this case, Mobil did not give a pre-payment statement to the applicant before it made the payment to him. The AAT commented that section 82-10F was enlivened because Mobil was now required to make a pre-payment statement.
However, the ATO considers that, based on the arrangement set out in the private ruling, the AAT's comments about the operation of section 82-10F in this case are misleading. Once a TTP is paid to an individual, the provisions of Subdivision 82-B of the TP Act deal with the assessability of the TTP in the hands of the recipient. Even if the recipient has mistakenly not been given a pre-payment statement, the provisions of section 82-10F are not later 'enlivened' to affect what has already occurred under Subdivision 82-B.
Administrative Treatment
Implications for ATO precedential documents (Public Rulings & Determinations etc)
None
Implications on Law Administration Practice Statements
None
Court citation:
[2011] AATA 264
2011 ATC 10-179
(2011) 83 ATR 737
Legislative References:
Income Tax (Transitional Provisions) Act 1997
82-10
82-10F(1)
82-10F(2)
82-10G
Case References:
Colonial First State Investments Limited v Commissioner of Taxation
[2011] FCA 16
2011 ATC 20-235
Riverwood International Australia Pty Ltd v McCormick
[2000] FCA 889
177 ALR 193
Visscher v Giudice
[2009] HCA 34
239 CLR 361