Private ruling: Employment termination payments
Date of advice: 21 December 2017
Published: June 2018
Date scheme commenced: July 20XX

Ruling: Q1: Is the payment received by the Taxpayer an employment termination payment (ETP) for the purposes of section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: The Taxpayer commenced employment with the Employer. The Taxpayer’s employment was terminated. Within 12 months of termination, the Taxpayer commenced legal proceedings against the Employer. The Taxpayer and the Employer agreed to a Deed of Settlement and Release. The Taxpayer and the Employer agreed to a Settlement and Release Agreement (the Agreement). Under the Agreement, the Taxpayer received a settlement sum more than 12 months after the termination.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 82-10 | Income Tax Assessment Act 1997 subsection 82-10(3) | Income Tax Assessment Act 1997 Section 82-130 | Income Tax Assessment Act 1997 Subsection 82-130(1) | Income Tax Assessment Act 1997 Section 135 | Superannuation Industry (Supervision) Regulations 1994 subregulation 6.01(2)

Reasons for decision: Summary: The payment received is an ETP as legal action was commenced within 12 months of the termination, causing the payment to be made more than 12 months after the termination. | Detailed Reasoning - Detailed reasoning: Employment termination payment (ETP) In accordance with subsection 82-130(1) of the ITAA 1997, a payment is an ETP 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 The payment was made in consequence of the termination of employment and is not any of the types of payments listed in section 82-135 of the ITAA 1997. The Taxpayer was terminated on XX October 20XX and the relevant payment was received on XX November 20XX, which is more than 12 months after the termination. The Commissioner has made ‘Employment Termination Payments (12 month rule) Legislative Instrument 2007, effective XX November 20XX, which reads: Paragraph 82-130(1)(b) of the ITAA 1997 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 was 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. Paragraph 82-130(1)(b) of the ITAA 1997 will not apply as the Taxpayer commenced legal proceedings within 12 months of termination of their employment, and the settlement sum is an ETP. Taxation of ETPs The taxable component of an ETP is assessable, however a tax offset applies. Preservation age is defined in regulation 6.01(2) of the Superannuation Industry (Supervision) Regulations 1994 and, for a person born after 30 June 1964, is 60 years. The Taxpayer is under their preservation age in this case. Subsection 82-10(3) of the ITAA 1997 applies to ensure that the rate of tax payable on the taxable component does not exceed 30% (plus Medicare levy). In this case, the relevant cap amount is the ETP cap, which is $$ for the 20XX-XX income year.

This advice applies for the following period: Income year ended June 20XX