Private ruling: Foreign termination payment
Published: March 2014
Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the payment your client received from their foreign employer not assessable income and not exempt income under section 83-235 of the Income Tax Assessment Act 1997 (ITAA 1997)? Advice/Answers Yes.

Relevant facts and circumstances: Your client is not a citizen of Australia. Your client was employed by a foreign employer. Your client accepted an assignment with in Australia with an Australian employer. Between 19XX and 20YY your client resided in Australia and was an Australian resident for tax purposes. In the 20YY-ZZ income year your client accepted another assignment overseas. Your client had returned to Australia for a short period of time but did not intend to settle permanently in Australia and had a permanent place of abode outside Australia. In the 20AA-BB income year your client was offered and accepted yet another assignment overseas. As a result of your client's employment overseas your client's employment with the Australian employer was terminated in the 20CC-DD income year. Your client received a termination payment from the Australian employer in the 20CC-DD income year. The payment relates solely to your clients employment overseas and to a period of employment when your client was not an Australian resident. The payment is not a superannuation benefit. The payment is not a payment of a pension or annuity.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 83-D | Income Tax Assessment Act 1997 Section 83-240 of the ITAA 1997 | Income Tax Assessment Act 1997 Section 83-235 of the ITAA 1997 Further issues for you to consider | Not applicable. | Anti-avoidance rules | Not applicable.

Reasons for decision: Summary: The payment your client received is a foreign termination payment and is not assessable income and is not exempt income. | Detailed Reasoning - Foreign termination payment: Termination payments that arise out of foreign employment are dealt with under Subdivision 83-D of the Income Tax Assessment Act 1997 (ITAA 1997). Subdivision 83-D of the ITAA 1997 essentially exempts two types of termination payments from tax - termination payments relating to a period when the taxpayer was not an Australian resident (section 83-235 of the ITAA 1997) and termination payments relating to a period when the taxpayer was an Australian resident (section 83-240 of the ITAA 1997). Section 83-235 of the Income Tax Assessment Act 1997 (ITAA 1997) applies where a person was not a resident of Australia for tax purposes during the period of overseas employment. Section 83-235 of the ITAA 1997 states: A payment received by you is not assessable income and is not exempt income if: (a) it was received in consequence of the termination of your employment in a foreign country; and (b) it is not a superannuation benefit; and (c) it is not a payment of a pension or an annuity (whether or not the payment is a superannuation benefit); and (d) it relates only to a period of employment when you were not an Australian resident. (emphasis added) In your case, your client received a payment due to the termination of their employment with their Australian employer. The payment relates solely to your client's employment in overseas. The payment is not a superannuation benefit. The payment is not a payment of a pension or annuity. Further, the payment relates solely to a period of employment when your client was not an Australian resident. Consequently, the payment your client received is a foreign termination payment under section 83-235 of the ITAA 1997 and is not assessable income and is not exempt income.