Private ruling: Derivation of income
Date of advice: 18 December 2015
Published: March 2016
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Question and answer | Is the payment you received from the liquidators assessable in the 20XX income tax year? | Yes.

Relevant facts and circumstances: Your former employer went into liquidation and liquidators were appointed. The liquidators issued a letter dated dd/mm/20XX which detailed the final payment of entitlements owed and contained a cheque and payment summaries for the 20XX tax year. The letter containing the documents and cheque was received by you in the post on dd/mm/20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Subsection 6-5(4)

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that your assessable income includes the ordinary income you derive directly or indirectly from all sources during the income year. Subsection 6-5(4) of the ITAA 1997 states that In working out whether you have derived an amount of * ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct. Taxation Determination TD 93/242 Income tax: what is the income tax treatment of a deferred salary payment agreement? (TD 93/242) discusses the operation of subsection 6-5(4) of the ITAA 1997 in regard to when employment related income is derived. Paragraph 3 of TD 93/242 states that income from employment, such as salary, wages or other payments to employees for services rendered, is generally derived only when received. That is, on a cash receipts basis. However, paragraph 4 of TD 93/242 explains that if, for example, an amount is credited to an employee in the books of his employer and can be drawn by the employee at any time, subsection 6-5(4) of the ITAA 1997 applies so that the amount is derived at the time it was so credited and made available to the employee. Your situation is similar to the taxpayer in Case D62, 72 ATC 376 whose employer drew a cheque for additional wages owing in the last week of June and the taxpayer did not take possession of the cheque until 1 July, that is, the next income tax year. The Commissioner included the amount in the assessable income of the taxpayer in the income year the cheque was drawn and the decision was confirmed by the court. In your case, you received a cheque for employment entitlements owed to you which was drawn on or about dd/mm/20XX and the amounts were included in the 20XX payment summaries that were also issued. Although you only received the cheque on dd/mm/20XX, the amounts were applied or dealt with in your favour prior to 30 June 20XX and are therefore assessable in the income tax year ended 30 June 20XX.