Private ruling: Tax treatment of termination payment and unused annual leave and long service leave
Date of advice: 8 January 2026
Published: 2 March 2026
Ruling period: Income year ending 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Is any part of the payment you received a genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Does the ex-gratia payment, payment in lieu and signing bonus qualify as employment termination payments under section 82-130 of the ITAA 1997? | A2: Yes | Q3: Does the unused annual leave payment qualify for a tax offset pursuant to section 83-15 of the ITAA 1997? | A3: No | Q4: Does the unused long service leave qualify for a tax offset pursuant to section 83-85 ITAA 1997? | A4: No

Relevant facts and circumstances: You were employed by the employer. The relationship between you and the manager broke down. During 2024, your employment was terminated. You entered a deed of release (Deed) with the employer. The Deed contained the following relevant clauses: • The Company will pay the Employee a Signing Bonus if this Deed is executed and returned by the due date. • Within 21 days of execution of this Deed, the Company will make payment of the sum comprising the Long Service Leave Entitlement and the Ex-Gratia Payment to the Employee. • The Employee forever releases, discharges and indemnifies the Company, its officers, employees and agents from all present and future Claims which the Employee may have against any of them except for those Claims concerning workers' compensation. • The Company releases and forever discharges and releases the Employee from any liability past, present or future from all claims, suits, demands, actions or proceedings arising out of or connected with the Employee's employment with the Company, including but not limited to the cessation of the employment. • The Settlement Sum is paid solely to settle the matters in dispute between the parties, without any admission to liability by the Company. This Deed must not be interpreted by the Employee as an admission by the Company of liability to the Employee for any matter You were also paid the following employee termination entitlements: • unused annual leave • payment in lieu of notice The final payment was made during 2024.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 82-130 | Income Tax Assessment Act 1997 Section 82-135 | Income Tax Assessment Act 1997 Section 83-15 | Income Tax Assessment Act 1997 Section 83-85 | Income Tax Assessment Act 1997 Section 83-175 Other relevant documents | Taxation Ruling TR 2009/2: Income tax: genuine redundancy payments | Taxation Ruling TR 2003/13 Income tax: employment termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of'

Reasons for decision: Summary: Genuine redundancy payment A payment made to an employee is a genuine redundancy payment if it satisfies all the conditions set out in section 83-175 of the ITAA 1997. This section states: (1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employees position is genuinely redundant and exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of dismissal. (2) A genuine redundancy payment must satisfy the following conditions: (a) the employee is dismissed before the earlier of the following: (i) the day the employee reached pension age; (ii) if the employees employment would have terminated when he or she reached a particular age or completed a particular period of service the day he or she would reach the age or complete the period of service (as the case may be); (b) if the dismissal was not ay arms length the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arms length; (c) at the time of the dismissal, there was no arrangement between the employee and the employer, or between the employer and another person, to employ the employee after dismissal. (3) However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time. Payments not covered (4) A payment is not a genuine redundancy payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)). Paragraph 11 of Taxation Ruling TR 2009/2: Income tax: genuine redundancy payments (TR 2009/2), outlines the requirements to be satisfied under subsection 83-175(1) of the ITAA 1997. There are four necessary components within this requirement: • The payment being tested must be received in consequence of an employee's termination. • That termination must involve an employee being dismissed from employment. • That dismissal must be caused by the redundancy of the employee's position. • The redundancy payment must be made genuinely because of a redundancy. The Commissioner's view is that a genuine redundancy payment arises only when there is no suitable job available for the employee with the employer, making dismissal necessary. TR 2009/2 states: 25. An employee's position is redundant when an employer determines that it is superfluous to the employer's needs and the employer does not want the position to be occupied by anyone. Accordingly, it is fundamentally the employer's decision that a position is redundant. On occasion the decision may be unavoidable due to the circumstances surrounding the employer's operations. As your employer did not make the position redundant, a key requirement of subsection 83-175(1) of the ITAA 1997 has not been met. Consequently, no part of the payment qualifies as a genuine redundancy. | Detailed Reasoning - Employment termination payment: The term 'employment termination payment' as defined in section 82-130 of the ITAA 1997, includes any payment made in respect of a taxpayer 'in consequence of the termination of their employment', other than certain specified payments. A payment is an ETP if it satisfies all the requirements in section 82-130 of the ITAA 1997 and is not specifically excluded under section 82-135 of the ITAA 1997. Subsection 82-130(1) of the ITAA 1997 states: 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. | Detailed Reasoning - Paid 'in consequence' of the termination of employment: The phrase 'in consequence of' is not defined in the ITAA 1997. However, the courts have interpreted the phrase in a number of cases. Taking into account the courts' decisions on the meaning of the phrase, the Commissioner's view on the meaning and application of the 'in consequence of' test are set out in Taxation Ruling TR 2003/13 Income tax: eligible termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' (TR 2003/13 ) . Paragraphs 5 and 6 of TR 2003/13 state: 5....the Commissioner considers that a payment is received by a taxpayer in consequence of the termination of the taxpayer's employment if the payment 'follows as an effect or result of' the termination. In other words, but for the termination of employment, the payment would not have been received by the taxpayer. 6. The phrase requires a causal connection between the termination and the payment, although the termination need not be the dominant cause of the payment.... At paragraph 32 of TR 2003/13, the Commissioner considers payments from a former employer to settle litigation: 32. The Federal Court in Dibb v. FC of T [1] adopted the approach of Goldberg J in Le Grand . At issue was whether a payment received by the taxpayer under a deed of release, following the settlement of Federal Court proceedings against his former employer, was an ETP. In deciding the payment was an ETP, Heery J held that the length of time between the termination of employment, the commencement of court proceedings and payment following settlement did not sever the causal connection between the termination and the payment. It was sufficient that the subject matter of the litigation was the termination. Heery J found at 296 that: 'The various causes of action whether breach of contract, conspiracy, breach of fiduciary duty or contravention of the Trade Practices Act were, as Goldberg J would say (Le Grand at [36]), 'interwoven and intertwined' with the termination. The payment was a consequence of the settlement, which was a consequence of the Federal Court proceeding, which in turn was a consequence of the termination.' The payments in these cases were ETPs because there was a sequence of connected events following the termination, which ultimately led to the payment. The payments would not have been made but for the termination. In this case, you and the employer agreed to settle your differences under the terms of the Deed. Your settlement payment is conditional upon releasing and discharging the employer from any claim or liability in relation to those matters. While the Deed is the direct cause of the payment, the proceedings were commenced by you and the employer as a result of the termination of your employment. That is, there was a sequence of events following the termination which ultimately led to the payment being made under the Deed. The termination, the Deed and the payment were all intertwined. The ex-gratia payment, payment in lieu and signing bonus would not have been made but for the termination of your employment. Therefore, it is considered that these payments were received by you in consequence of the termination of your employment. As such, the requirement of subparagraph 82-130(1)(a)(i) of ITAA 1997 has been satisfied. | Detailed Reasoning - Payment received no later than 12 months after termination: Paragraph 82-130(1)(b) of the ITAA 1997 requires that the payment must be received no later than 12 months after the termination of employment. Your employment ended on DD MM 2024 and total payment was received by DD MM 2024. This condition has been met. | Detailed Reasoning - Payment is not a payment mentioned under section 82-135 of the ITAA 1997: Paragraph 82-130(1)(c) of the ITAA 1997 specifies that an ETP does not include a payment mentioned in section 82-135. Paragraphs 82-135(c) and 82-135(d) of the ITAA 1997 exclude unused annual leave and unused long service leave from being ETPs. The ex-gratia payment, payment in lieu, and signing bonus are not excluded under section 82-135 of the ITAA 1997. Conclusion The ex-gratia payment, payment in lieu and signing bonus received by you from the employer are ETPs. | Detailed Reasoning - Entitlement to tax offset for unused annual leave: Section 83-15 of the ITAAA 1997 states you are entitled to a tax offset to ensure the rate of tax on an unused leave payment does not exceed 30%, to the extent that: (a) the payment was made in connection with a payment that includes, or consists of, any of the following: (i) a genuine redundancy payment; (ii) an early retirement scheme payment; (iii) the invalidity segment of an employment termination payment or a superannuation benefit; or (b) the payment was made in respect of employment before 18 August 1993. Your unused annual leave payment was not made in connection with any of the above. Subsequently, the unused leave payment is not entitled to an offset under section 83-15 of the ITAA 1997. | Detailed Reasoning - Entitlement to tax offset for unused long service leave: Subsection 83-85(1) of the ITAAA 1997 states you are entitled to a tax offset on unused long service leave payment that ensures that the rate of income tax on the amount of the payment mentioned in subsection (2) does not exceed 30%. Subsection 83-85(2) of the ITAA 1997 states the amount is the part of the unused long service leave payment included in your assessable income under subsection 83-80(1). (a) to the extent that it is attributable to the pre 18/8/93 period; and (b) to the extent that is it attributable to the post 17/8/93 period, if the payment was made in accordance with a payment that includes, or consists, of any of the following: (i) a genuine redundancy payment; or (ii) an early retirement scheme payment; or (iii) the invalidity segment of an employment termination payment or a superannuation benefit. Your unused long service leave payment was not made in connection with any of the above. Subsequently, the unused long service leave payment is not entitled to an offset under subsection 83-85(2) of the ITAA 1997. [1] (2003) 53 ATR 290