Private ruling: Income - timing
Published: October 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2008

Ruling: Q1: Is the payment of leave entitlements relating to the 200X financial year, received in relevant year included as assessable income for the relevant financial year? | A1: Yes

Relevant facts and circumstances: You resigned from your employer during the 200X financial year Your previous employer contacted you by letter in 20XX, advising that they had miscalculated your leave entitlement at the time of your resignation You received payment of the shortfall amount relating to the miscalculated leave entitlement in the relevant financial year Your previous employer issued you with a PAYG payment summary for the 200X financial year containing the shortfall amounts paid in the relevant financial year

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Section 6-5 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 are regarded as ordinary income and therefore assessable under section 6-5 of the ITAA 1997. The payment of leave entitlements are included as part of employment income. Income is assessable for income tax purposes, under section 6-5 of the ITAA 1997 , when the person is taken to have derived it. The term derived is explained in the subsection to mean when it is received or applied or dealt with in any way at the person's direction. Taxation Ruling TR 98/1 sets out the Commissioner's guidelines on the cash or accruals methods for the treatment of income. Income from employment would normally be assessable on a receipts basis. Salary, wages or other employment remuneration are assessable on receipt even though they relate to past or future income periods (paragraph 42). In your case, you received a payment in the relevant financial year from your previous employer, which relates to unused leave that should have been paid to you upon your resignation in 200X financial year. Even though the income received is related to the 200X financial year, it was received in the relevant financial year and therefore it is assessable in that year.