Private ruling: LSL payment on termination – Foreign employer
Date of advice: 1 March 2019
Published: May 2019
Ruling period: Period ending 30 June 2019
Date scheme commenced: 01 July 2018

Ruling: Q1: Will the long service leave (LSL) entitlement paid on termination by a foreign employer in respect of a period of employment when you were not a resident of Australia be exempt from Australian income tax under section 83-235 of the Income Tax Assessment Act 1997 ? | A1: Yes

Relevant facts and circumstances: 1. You moved to country A to live. 2. You commenced work with a company. 3. You have worked continuously for this employer and intend to retire soon. 4. You will receive unused long service leave entitlements relating to a period when you were not an Australian resident.

Relevant legislative provisions: Section 83-235 of the ITAA 1997

Reasons for decision: Summary: 5. Section 83-235 of the ITAA 1997 sets out the conditions under which a payment will be a tax free termination payment in respect of a foreign resident period. These are: a) the payment is received in consequence of the termination of the person's employment in a foreign country (paragraph 83-235(a) of the ITAA 1997), and b) the payment is not a superannuation benefit (paragraph 83-235(b) of the ITAA 1997), and c) the payment is no t a payment of a pension or annuity (whether or not the payment is a superannuation benefit) (paragraph 83-235(c) of the ITAA 1997), and d) the payment relates only to a period of employment when the person was not an Australian resident (paragraph 83-235(d) of the ITAA 1997). 6. In your case the payment is made in consequence of termination, the payment is not a superannuation payment and is not a pension or annuity. Therefore conditions (a), (b) and (c) above is met. 7. In relation to condition (d), the payment can be tested independently from a second payment made in relation to a period when you were an Australian resident. Your employer has provided two summaries with a breakdown of the payments and what periods they relate to. 8. As the payment is for LSL made in respect of your time as a non-resident, it is tax free under section 83-235 of the ITAA 1997.