Private ruling: Deductibility of payment to former employer
Published: June 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and answer | Are you entitled to a deduction for the sum of money paid to your former employer in relation to your early termination of your employment contract? | No.

Relevant facts and circumstances: You agreed that you would remain working for your former employer for a minimum of a set number of months, and if you terminated your employment prior to this period ending, you would pay your former employer an agreed sum of money. You terminated your employment with your former employer prior to the agreed period ending, and paid the agreed sum of money to your former employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. In your case you paid your former employer a sum of money when you terminated your employment prior to the minimum period you agreed to remain employed with them. This sum of money was not incurred in gaining your salary and wages or carrying out your employment duties, rather, it was paid by you in order to terminate your employment contract. The payment was not incurred by you in the course of your employment or in the course of gaining or producing assessable income. Therefore, you are not entitled to a deduction for the sum of money paid to your former employer in relation to your early termination of your employment contract.

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