Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is any part of the payment made by Company A, the employer, a transitional termination payment as defined in section 82-10 of the Income Tax (Transitional Provisions) Act 1997 ? | A1: 

Relevant facts and circumstances: You began employment with the employer on xx xx xx. You were most recently employed by the employer as a Financial Planner on terms set out in a contract of employment dated xx xx xx. You claimed, amongst other things, sex discrimination, sexual harassment and victimisation under the Sex Discrimination Act 1984 , disability discrimination under the Disability Discrimination Act 1992 and breach of contract against the employer. You contacted a lawyer in xx xx in relation to your claims. You subsequently filed a claim against the employer in the Federal Court of Australia The matter was settled prior to the Federal Court hearing at the second mediation and a Deed of release (the Deed) was signed on xx xx xx. Clause 2.1 of the Deed states: The Respondents will pay to xx xx the amount set out in the Schedule to this document, less applicable tax (the Payment) Clause 13.5(a) of the Deed states: This document contains the entire agreement between the parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this document and has no further effect. The payment schedule states: The Payment 1. The sum of $ by way of a redundancy less taxation calculated as a genuine redundancy. 2. The sum of $ by way of compensation for pain and suffering. 3. Any accrued and untaken annual and long service leave. Your employment with the employer ceased on xx xx xx. You sought advice from an accountant as to the best way to structure your payout. However, you were not given the opportunity to contribute to superannuation as the payment was to be made to you in cash.

Relevant legislative provisions: Income tax (Transitional Provisions) Act 1997 Section 82-10. | Income tax (Transitional Provisions) Act 1997 Subsection 82-10(1). | Income tax (Transitional Provisions) Act 1997 Paragraph 82-10(1)(a) | Income tax (Transitional Provisions) Act 1997 Paragraph 82-10(1)(b). | Income tax (Transitional Provisions) Act 1997 Subsection 82-10(3). Reason for Decision | Summary of decision | The payment is not a transitional termination payment because it was provided for under a contract, instrument or agreement that came into force on or after 10 May 2006. | In addition, the payment cannot be a directed termination payment as it is being made to you directly and not to a complying superannuation fund | Detailed reasoning | Transitional termination payment | Employment termination payments cannot be rolled over into a complying superannuation fund, unless the payment qualifies as a transitional termination payment under section 82-10 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) . Subsection 82-10(1) of the IT(TP)A states that: | This Division applies in relation to a life benefit termination payment received by you on or after 1 July 2007 if: | (a) the payment is received by you because you are entitled to it under a written contract, a law of the Commonwealth, a State, a Territory or another country, an instrument under such a law, a collective agreement within the meaning of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 or an AWA within the meaning of that Act; and (b) the entitlement is provided for under that contract, law, instrument or agreement as in force just before 10 May 2006. | Furthermore, at subsection 82-10(3) of the IT(TP)A it states: | This Division applies in relation to a life benefit termination payment only to the extent that the contract, law or agreement as in force just before 10 May 2006 specifies the amount of the payment, or a way to work out a specific amount of the payment. | The first issue for consideration is whether the payment satisfies the requirement of being an entitlement under a written contract. | The explanatory memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 which, as enacted, introduced section 82-10 of the IT(TP)A states at paragraph 4.68: | In order to ensure that the transitional provisions are not open to abuse, they are only available in situations where the payment was able to be determined as at 9 May 2006. This will encompass arrangements where the contract refers to the amount of the payment by way of a formula which can be objectively determined, or to payments made in kind (eg, shares). [ Schedule 2, item 2, subsections 82 - 10(3 ) and ( 4 )] | In this case, the payment and the formulas to calculate them are stated clearly in a Deed of release (the Deed) signed on xx xx xx. | This will satisfy the requirement in paragraph 82-10(1)(a) of the IT(TP)A that the payment is received by a taxpayer because they have an entitlement under a written contract to the payment. | Contract in force before 10 May 2006 | Paragraph 82-10(1)(b) of the IT(TP)A requires that the entitlement is provided for under that contract as in force just before 10 May 2006. Furthermore, subsection 82-10(3) provides that the division applies to a payment only to the extent that the contract as in force just before 10 May 2006 specifies the amount of the payment, or a way to work out a specific amount of the payment. | The Commissioner considers that a payment made under an agreement entered into after 9 May 2006 will not be a transitional termination payment even if the terms under which the payment is made are the same as the terms of an agreement in place just before 10 May 2006. This is because the employer did not work out a specific amount of the payment as provided for by the agreement as in force just before 10 May 2006. The employer made the payment referencing the terms of the new agreement. | In this instance you began employment with the employer on xx xx xx. | You claimed, amongst other things, sex discrimination, sexual harassment and victimisation under the Sex Discrimination Act 1984 , disability discrimination under the Disability Discrimination Act 1992 and breach of contract against the employer. You contacted a lawyer in xx xx and subsequently filed a claim against in the Federal Court of Australia. | The matter was settled prior to the Federal Court hearing at the second mediation in accordance with the Deed signed on xx xx xx. | Clause 2.1 of the Deed states: | The Respondents will pay to xx xx the amount set out in the Schedule to this document, less applicable tax ( the Payment ) | Further, clause 13.5(a) of the Deed states: | This document contains the entire agreement between the parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this document and has no further effect. | From the above it is clear that the payment is made under the Deed signed on xx xx xx. That is, the payment is provided for under a contract in force after 10 May 2006. | Consequently, the requirement in paragraph 82-10(1)(a) of the IT(TP)A is not satisfied. The payment made to you is, therefore, not a transitional termination payment under section 82-10 of the IT(TP)A. | Directed termination payments | Section 82-10G of the IT(TP)A 1997 states: | A directed termination payment made on your behalf, that you are taken to receive under section 82-20 of the Income Tax Assessment Act 1997 , is not assessable income and is not exempt income. A payment is a directed termination payment if an individual chooses within 30 days of receiving a pre payment statement from the payer to direct a transitional termination payment or part of it on the individuals behalf to a complying superannuation plan or to purchase a superannuation annuity. | Notwithstanding the fact that a payment is a transitional termination payment, under paragraph 82_10F(1)(b) of IT(TP)A, if the employer makes that payment to the employee directly and not to a complying superannuation fund, it cannot be a directed termination payment. | In this case the payment is being made to you directly and not to a complying superannuation fund The legislation itself is quite specific and does not contain a discretion that can be exercised by the Commissioner to treat the payment as a directed termination payment. | It should be noted that in making this decision, the Commissioner has not considered the following matters: | · whether the payment results from a dismissal and whether your position has been made genuinely redundant. | · Whether the part of the payment representing the sum of $ xx by way of compensation for pain and suffering is taxable as an employment termination payment subject to the application of paragraph 82-135(i) of the ITAA 1997.

Reasons for decision: Detailed Reasoning - Summary of decision: The payment is not a transitional termination payment because it was provided for under a contract, instrument or agreement that came into force on or after 10 May 2006. In addition, the payment cannot be a directed termination payment as it is being made to you directly and not to a complying superannuation fund | Detailed Reasoning - Transitional termination payment: Employment termination payments cannot be rolled over into a complying superannuation fund, unless the payment qualifies as a transitional termination payment under section 82-10 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) . Subsection 82-10(1) of the IT(TP)A states that: This Division applies in relation to a life benefit termination payment received by you on or after 1 July 2007 if: (a) the payment is received by you because you are entitled to it under a written contract, a law of the Commonwealth, a State, a Territory or another country, an instrument under such a law, a collective agreement within the meaning of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 or an AWA within the meaning of that Act; and (b) the entitlement is provided for under that contract, law, instrument or agreement as in force just before 10 May 2006. Furthermore, at subsection 82-10(3) of the IT(TP)A it states: This Division applies in relation to a life benefit termination payment only to the extent that the contract, law or agreement as in force just before 10 May 2006 specifies the amount of the payment, or a way to work out a specific amount of the payment. The first issue for consideration is whether the payment satisfies the requirement of being an entitlement under a written contract. The explanatory memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 which, as enacted, introduced section 82-10 of the IT(TP)A states at paragraph 4.68: In order to ensure that the transitional provisions are not open to abuse, they are only available in situations where the payment was able to be determined as at 9 May 2006. This will encompass arrangements where the contract refers to the amount of the payment by way of a formula which can be objectively determined, or to payments made in kind (eg, shares). [ Schedule 2, item 2, subsections 82 - 10(3 ) and ( 4 )] In this case, the payment and the formulas to calculate them are stated clearly in a Deed of release (the Deed) signed on xx xx xx. This will satisfy the requirement in paragraph 82-10(1)(a) of the IT(TP)A that the payment is received by a taxpayer because they have an entitlement under a written contract to the payment. | Detailed Reasoning - Contract in force before 10 May 2006: Paragraph 82-10(1)(b) of the IT(TP)A requires that the entitlement is provided for under that contract as in force just before 10 May 2006. Furthermore, subsection 82-10(3) provides that the division applies to a payment only to the extent that the contract as in force just before 10 May 2006 specifies the amount of the payment, or a way to work out a specific amount of the payment. The Commissioner considers that a payment made under an agreement entered into after 9 May 2006 will not be a transitional termination payment even if the terms under which the payment is made are the same as the terms of an agreement in place just before 10 May 2006. This is because the employer did not work out a specific amount of the payment as provided for by the agreement as in force just before 10 May 2006. The employer made the payment referencing the terms of the new agreement. In this instance you began employment with the employer on xx xx xx. You claimed, amongst other things, sex discrimination, sexual harassment and victimisation under the Sex Discrimination Act 1984 , disability discrimination under the Disability Discrimination Act 1992 and breach of contract against the employer. You contacted a lawyer in xx xx and subsequently filed a claim against in the Federal Court of Australia. The matter was settled prior to the Federal Court hearing at the second mediation in accordance with the Deed signed on xx xx xx. Clause 2.1 of the Deed states: The Respondents will pay to xx xx the amount set out in the Schedule to this document, less applicable tax ( the Payment ) Further, clause 13.5(a) of the Deed states: This document contains the entire agreement between the parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this document and has no further effect. From the above it is clear that the payment is made under the Deed signed on xx xx xx. That is, the payment is provided for under a contract in force after 10 May 2006. Consequently, the requirement in paragraph 82-10(1)(a) of the IT(TP)A is not satisfied. The payment made to you is, therefore, not a transitional termination payment under section 82-10 of the IT(TP)A. | Detailed Reasoning - Directed termination payments: Section 82-10G of the IT(TP)A 1997 states: A directed termination payment made on your behalf, that you are taken to receive under section 82-20 of the Income Tax Assessment Act 1997 , is not assessable income and is not exempt income. A payment is a directed termination payment if an individual chooses within 30 days of receiving a pre payment statement from the payer to direct a transitional termination payment or part of it on the individuals behalf to a complying superannuation plan or to purchase a superannuation annuity. Notwithstanding the fact that a payment is a transitional termination payment, under paragraph 82_10F(1)(b) of IT(TP)A, if the employer makes that payment to the employee directly and not to a complying superannuation fund, it cannot be a directed termination payment. In this case the payment is being made to you directly and not to a complying superannuation fund The legislation itself is quite specific and does not contain a discretion that can be exercised by the Commissioner to treat the payment as a directed termination payment. It should be noted that in making this decision, the Commissioner has not considered the following matters: · whether the payment results from a dismissal and whether your position has been made genuinely redundant. · Whether the part of the payment representing the sum of $ xx by way of compensation for pain and suffering is taxable as an employment termination payment subject to the application of paragraph 82-135(i) of the ITAA 1997.

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