Private ruling: Repaid relocation salary
Published: March 2013
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Question and Answer | Are you entitled to reduce your assessable income by the amount of salary you were required to repay your previous employer when you resigned from their employment? | Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You began your employment contract with your former employer. Under your employment contract, you received a payment for your relocation package. Your relocation package consisted of two portions, a salary component of $X and a relocation expenses component including costs for accommodation, airfare and freight. The salary component of $X was included on your payslip and tax was withheld. You declared this payment in your tax return. Under the employment contract, you had to pay back a percentage of the relocation amount if you left the company within M years. The payback amount was in accordance with the number of service months completed. You resigned from your employment within M years. You had to pay back to your employer an amount equivalent to a certain percentage of the total relocation costs that you had received. This included a percentage of the salary you had received as part of the relocation package. The amount you had to repay was $Y. You were advised that if you were not able to indicate an acceptable proposal to repay the sum, the amount would be deducted from your termination pay. Your final termination statement from your employer shows the amount of the salary component of your relocation package ($Y) was deducted from your final pay.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 6-5. | Income Tax Assessment Act 1997 - Section 59-30

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages and allowances are regarded as ordinary income and therefore are assessable under subsection 6-5(2) of the ITAA 1997. Section 59-30 of the ITAA 1997 states that an amount you receive is not assessable and is not exempt income for an income year if: (a) you must repay it; (b) you repay it in a later income year; and (c) you cannot deduct the repayment for any income year. In your case, you began your employment contract with your former employer. You received a payment for your relocation expenses. This was made up of two components including a salary component which was shown on your payslip. You declared the amount of $X in your income tax return. Your contract required an amount to be repaid if you left within M years. You resigned within M years. You were required to repay a set percentage of your relocation payment. This included a percentage of the salary component. Your final termination statement shows the amount of $Y was deducted from your final termination pay. As you were required to repay the salary amount of $Y which you have declared as part of your salary income in your tax return, this amount is not assessable income under section 59-30 of the ITAA 1997.