Private ruling: Death benefit employment termination payment
Date of advice: 29 November 2016
Published: April 2017
Ruling period: Year ended 30 June 20WW | Year ending 30 June 20XX | Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20VV

Ruling: Q1: Are the payments paid, and to be paid, to you, totalling $[amount], an employment termination payment in accordance with section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: Your spouse (deceased) passed away on in the 20UU-VV income year The deceased was employed by the Employer for many years and ceased working in the 20UU-VV income year due to illness. The Employer decided, subsequent to the deceased's death, to pay you an amount viewed as an appropriate payment for the deceased's years of service and dedication. Due to cash flow reasons and a restructure at the Employer, the Employer was only able to pay a certain amount within 12 months of termination of employment. The remaining amount was paid outside 12 months of the termination of employment. You had no say in the fact of how and when the payment was made. There was no agreement in writing to pay the amount however the Employer verbally committed to making the entire payment. Neither you nor the deceased were directors or shareholders of the Employer. In your application for a private ruling you included a request for the Commissioner to make a determination under subsection 82-130(5) of the ITAA 1997 for the 12-month rule not to apply.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 995-1. | Income Tax Assessment Act 1997 Section 82-130 | Income Tax Assessment Act 1997 Subsection 82-130(1) | Income Tax Assessment Act 1997 Subsection 82-130(4) | Income Tax Assessment Act 1997 Subsection 82-130(5) | Income Tax Assessment Act 1997 Section 82-135

Reasons for decision: Summary: Based on the circumstances of this case the Commissioner has determined that the time taken between the termination of employment and the remaining payments is reasonable. Therefore, the 12 month rule under paragraph 82-130(1)(b) of the ITAA 1997 does not apply to the payments. As the other relevant conditions in section 82-130 of the ITAA 1997 are satisfied the payments are an employment termination payment. | Detailed Reasoning - Employment termination payment: Section 995-1 of the ITAA 1997 states that: employment termination payment has the meaning given by section 82-130. Subsection 82-130(1) of the ITAA 1997 declares: 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 The three conditions above need to be satisfied in order for the payment to be treated as an employment termination payment (ETP). In this case there is no question that the payment was made after the death of the deceased, in consequence of his termination of employment. The payments are not any of the types of payments listed in section 82-135 of the ITAA 1997. The key issue for consideration is the application of the 12 month rule under paragraph 82-130(1)(b) of the ITAA 1997. This is because some of the instalments will be made more than 12 months after the employment termination date of the deceased. The policy objective underlying the 12 month rule is detailed in the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 which states: 4.19 The 12-month rule exists to prevent abuse of the tax concession offered for these payments by using a series of payments over a number of income years. The provisions dealing with the Commissioner's ability to issue a determination are provided to allow flexibility where delays in payment are reasonable and not constructed with the intent of delivering taxation advantages. In this light, subsection 82-130(5) of the ITAA 1997 authorises the Commissioner to determine in writing that the '12 month rule' does not apply if the Commissioner considers the time between the employment termination and the payments to be reasonable having regard to the following: (a) The circumstances of the employment termination, including any dispute in relation to the termination; (b) The circumstances of the payment; (c) The circumstances of the person making the payment; and (d) Any other relevant circumstances. After considering the relevant circumstances for this case the Commissioner has determined that the time taken between the death of the deceased, in consequence of the deceased's termination of employment, and the payments is reasonable. Therefore, the 12 month rule under paragraph 82-130(1)(b) of the ITAA 1997 will not apply to your payments. As the 12 month rule does not apply to the payments, due to subsection 82-130(5) of the ITAA 1997 being satisfied, and the other relevant conditions in section 83-130 have been met, the payments received and those payable to you represent a death benefit ETP.