Private ruling: Employment termination payment - 12-month rule
Date of advice: 12 January 2026
Published: 9 March 2026
Ruling period: Year ended 30 June 2025

Ruling: Q1: Will the Commissioner exercise discretion under paragraph 82-130(5) of the Income Tax Assessment Act 1997 to determine that the time between termination and payment is reasonable, and that paragraph 82-130(1)(b) does not apply to this payment? | A1: Yes

Relevant facts and circumstances: You were employed by the Employer. During the 2023 income year, the Employer terminated your employment. You were paid accrued and unused annual leave. During the 2024 income, you commenced legal action in relation to a breach of contract and subsequent termination of your employment. The matter was resolved via a Deed of Release (Deed). The Deed contained the following relevant clauses: • Without any admissions as to liability, the Employer will within 14 days of the date of this Deed, make a payment to the former employee consisting of a reimbursement of expenses and an employment termination payment. • The former employee unconditionally releases the Employer from claims the former employee has now or may have had in the future if the parties had not executed this Deed. • The Employer unconditionally releases the former employee from claims the Employer has now or may have had in the future if the parties had not executed this Deed. During the 2025 income year a payment was made to you in accordance with the Deed.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 82-130 | Income Tax Assessment Act 1997 Section 82-135 We followed these ATO view documents | Taxation Ruling 2003/13: Income tax: employment termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' | Income Tax Employment Termination Payments (12-month rule) Determination 2018

Reasons for decision: Detailed Reasoning - Employment termination payment: A payment is an employment termination payment (ETP) if it satisfies all the requirements in section 82-130 of the ITAA 1997 and is not specifically excluded under section 82-135 of the ITAA 1997. Subsection 82-130(1) of the ITAA 1997 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 (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 the termination (but see subsection (4)); and (c) it is not a payment mentioned in section 82-135. Based on the information provided, paragraphs 82-130(1)(a) and (c) of the ITAA 1997 have been satisfied in relation to the payment. | Detailed Reasoning - Payment received no later than 12 months after termination: Paragraph 82-130(1)(b) requires that the payment must be received no later than 12 months after the termination of employment. However, subsection 82-130(4) of the ITAA 1997 says that paragraph 1(b) does not apply to you if: (a) you are covered by a determination under subsection (5) or (7); or (b) the payment is a *genuine redundancy payment or an *early termination payment Subsection 82-130(7) of the ITAA 1997 states: The Commissioner may, by legislative instrument, determine that paragraph (1)(b) does not apply to either or both of the following, as specified in the determination: a) a class of payments; b) a class of recipients of payments. Income Tax Employment Termination Payments (12-month rule) Determination 2018 (ETP 2018/1) has been made under subsection 82-130(7) of the ITAA 1997. This determination applies to a payment received more than 12 months after employment termination, that otherwise meets the criteria for an ETP. These payments are referred to as late termination payments. ETP 2018/1 states that paragraph 82-130(1)(b) does not apply to a late termination payment if the payment is received more than 12 months after the termination of a person's employment because: (a) legal action commenced within 12 months of the termination of employment, of which the subject is either or both: (i) the person's entitlement to the payment; (ii) the amount of the person's entitlement; or ... Your employment was terminated in the 2023 income year. The payment was made during the 2025 income year, which was more than 12 months after the termination. You initiated legal action for breach of contract and termination of employment within 12 months of your termination date. Accordingly, discretion has been applied and the payment is exempt from the 12-month rule under paragraph 82-130(1)(b) of the ITAA 1997. As all conditions of subsection 82-130(1) of the ITAA 1997 have been satisfied, the payment is an ETP.