Private ruling: Employment termination payment
Date of advice: 1 May 2026
Published: 6 July 2026
Ruling period: Income year ending DD MM YYYY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Is the lump sum payment of $X made to the taxpayer by the employer an employment termination payment (ETP) under section of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The taxpayer was employed by the employer between DD MM YYYY and DD MM YYYY. On DD MM YYYY, the taxpayer resigned from their employment with the employer, effective DD MM YYYY. Under the terms of the agreement executed by the taxpayer and the employer, the taxpayer was entitled to various payments from the employer, including a payment in lieu of applicable notice, and a payment of an ex-gratia payment. On DD MM YYYY, the taxpayer received the above payments, which were referenced on the taxpayer's payslip as 'employment termination payments'. The taxpayer applied for a private ruling, stating their view that the payments were in fact compensation for hurt, injury or distress, and are therefore non-assessable, non-exempt income under paragraph 118-37(1)(a) of the Income Tax Assessment Act 1997 . The taxpayer provided documentation in support of the application, including psychological reports which referenced the taxpayer's psychological condition being a result of their treatment by the employer, and the agreement between the parties, executed on DD MM YYYY.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 82-130 | Income Tax Assessment Act 1997 subsection 82-130(1) | Income Tax Assessment Act 1997 section 82-135 | Income Tax Assessment Act 1997 paragraph 82-135(i)

Reasons for decision: Detailed Reasoning - Employment termination payment: A payment is an employment termination payment (ETP) if it satisfies all the requirements in subsection 82-130(1) 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. For a payment to be an ETP, all the conditions in subsection 82-130(1) of the ITAA 1997 must be satisfied. Failure to satisfy any of the conditions will result in the payment not being considered an ETP. | Detailed Reasoning - Received 'in consequence of' the termination of your employment: For a payment to be an ETP, the first condition that must be met is that the payment is received in 'consequence of' the termination of employment of the taxpayer. 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 court's decisions on the meaning of the phrase, the Commissioner's view on the meaning and application of the 'in consequence of' test is set out in 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' (TR 2003/13). In paragraph 5 of TR 2003/13, the Commissioner states: ... 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. The taxpayer resigned from their employment with the employer on DD MM YYYY, effective DD MM YYYY. Subsequent to their resignation, the taxpayer executed the agreement with the employer. It was stated in the agreement that the parties 'have agreed to settle all issues arising out of the Employment and/or the Resignation on the terms set out in this Agreement...'. The agreement would not have been executed, had the taxpayer's employment not been terminated. The payment was made under the terms of the agreement. It is clear that, but for the termination of their employment, the taxpayer would not have received the payment Therefore, it is considered that the payment was received by the taxpayer 'in consequence of' the termination of their employment. The condition under paragraph 82-130(1)(a) is satisfied. | Detailed Reasoning - Payment received no later than 12 months after termination: The taxpayer resigned from their employment with the employer on DD MM YYYY, with effect from DD MM YYYY. The payment was received by the taxpayer on DD MM YYYY. The payment was made within 12 months of the termination of the taxpayer's employment. The condition under paragraph 82-130(1)(b) is satisfied. | Detailed Reasoning - Payment is not a payment mentioned under section 82-135 of the ITAA 1997: Section 82-135 of the ITAA 1997 states that certain payments are not ETPs, including unused annual and long service leave, superannuation benefits, and the tax-free part of a genuine redundancy payment, or early retirement scheme payment. Paragraph 82-135(i) includes, as a payment that is not an ETP, 'a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to derive income from personal exertion...'. This exclusion is for a payment or benefit that compensates or reimburses a person for, or in respect of, the particular injury. This requires there to be a relationship between the injury and the payment. The taxpayer stated their view that the payment constitutes compensation for hurt, injury or distress. In Commissioner of Taxation (Cth) v. Scully (2000) 201 CLR 148; [2000] HCA 6; (2000) 2000 ATC 4111; (2000) 43 ATR 718, the High Court held that compensation must be calculated by reference to the nature and extent of the injury or likely loss to the taxpayer. The payment in this case was not in respect of personal injury, acting Chief Justice Gaudron and Justices McHugh, Gummow and Callinan stating in their joint decision: However, the payment in this case cannot be said to be compensation for or in respect of the personal injury. Clauses 2.4.1 and 3.5.1, pursuant to which the respondent's payment was calculated, make no attempt to place a monetary value on a member's injury. They do not even provide a formula, roughly comparable to the manner in which a court or tribunal might assess damages in a claim for personal injury, to quantify the amount of the payment. Indeed, the very similarity of benefits for death, retirement, resignation, retrenchment and dismissal to those for total and personal disablement deny that the purpose of a payment pursuant to clauses 2.4.1 and 3.5.1 is concerned with the value of any injury sustained by an employee. ... In our opinion, the payment in this case cannot be characterised as consideration ... in respect of, personal injury. The fact that the payment is not calculated by reference to the nature and extent of the injury or likely loss to the respondent and the fact that the other benefits are similar to that for total and permanent disablement point inevitably to the conclusion that the payment was consideration ... for, or in respect of the respondent's termination of employment and their rights under the Trust Deed and was not consideration ... for, or in respect of their injury. In the Administrative Appeals Tribunal decision AAT Case 11,722 (1997) 35 ATR 1114; (1997) 97 ATC 258, a taxpayer negotiated a settlement with their past employer by agreeing to be paid a certain amount, also to forgo all past, present and future claims against the employer, except for personal injury. Senior Member Dwyer ruled that, given the 'exception' in the settlement clause, no amount of the settlement could be for personal injury. Therefore, the ETP exclusion provisions could not apply to the amount. There are three types of injury that a person can receive: (a) behavioural injury - one that involves physical injury (internal and/or external) and/or mental illness that is clearly discernible to a qualified medical practitioner; (b) non-behavioural injury - hurt, distress, anxiety, etc., that flows from the death of, or serious injury to, a relative or close friend; wrongful dismissal; defamation; etc. This type of injury may have legal remedies under the law of torts (e.g., defamation, slander), statute (e.g., sexual harassment, discrimination), or contract (e.g., employment, professional negligence); and (c) property injury - damage to a person's property. While all three types of injury may be considered personal, it is considered that only the first type (behavioural injury) falls within the meaning of the term 'personal injury'. The reasoning above is based on the decision by the Victorian Supreme Court in Graham v. Robinson [1992] 1 VR 279 ( Graham v. Robinson ), where the Court had to decide if emotional hurt (ie. hurt, distress, public scandal, hatred, odium, ridicule and contempt) was a personal injury. At 281, Justice Smith stated: In the absence of express authority, I have come to the conclusion that the expression personal injury does not extend beyond physical injury and mental illness to include emotional hurt. I am encouraged to this view by the fact that the law has rejected grief or sorrow as a form of injury which can be relied on to mount a claim in negligence: Mount Isa Mines Ltd. v. Pusey (1970) 125 CLR 383, at p. 394 and Jaensch v. Coffey (1984) 155 CLR 549, at p. 587. It is true that damages are awarded for pain and suffering in the typical personal injury case. They are awarded, however, where pain and suffering flow from and are connected with physical or mental injury and may therefore be said to be damages in respect of personal injury. The decision in Graham v. Robinson was applied in the AAT decision McMahon v. Commissioner of Taxation Case [1999] AATA 5; (1999) 41 ATR 1056; (1999) 99 ATC 2025 ( McMahon ) in relation to a payment for alleged damage to a taxpayer's reputation. In McMahon, a critical performance appraisal of the taxpayer and other comments were published in the media. Subsequent to this, the taxpayer's employment was terminated and it was agreed to pay him certain amounts including an amount for the alleged damage to his reputation. Senior Member Block stated: The Tribunal also notes the stipulation in the concluding portion of s. 27A(1)(n) of the Act that the amount of consideration for personal injury is to be regarded as an ETP only to the extent that it is reasonable having regard to the nature of the injury and the taxpayer's capacity to derive income from personal exertion. The Tribunal considers that the inclusion by the legislature of the words "from personal exertion" tends to confirm that the section is intended to exclude from the definition of ETP payments in respect of injuries to the person, where such injuries being physical injuries or mental illnesses which have an assessable and identifiable impact on the capacity of the taxpayer to earn income. The Tribunal considers in summary that an injury to person is distinguishable from an injury to a person's reputation. For the Reasons set out previously, (and bearing in mind that the decision in Graham v. Robinson is binding on the Tribunal), the reputation payment was not made in respect of personal injury within s. 27A(1)(n) of the Act which does not operate to exclude it from the provisions of s. 27A of the Act; accordingly the reputation payment was correctly assessable as an ETP. Applying the principles in the above cases, the payment must both be for, or in respect of, personal injury and must be calculated by reference to both the nature and extent of the injury and the likely loss of income to the taxpayer, in order to meet the requirements of paragraph 82-135(i) of the ITAA 1997. The agreement makes no reference to any injury, personal or otherwise, being suffered by the taxpayer. Further, the payment amount has not been calculated with reference to the nature and extent of any personal injury, nor to any subsequent likely loss of income as a result of such an injury. Therefore, the payment cannot be a capital payment for, or in respect of, personal injury, pursuant to paragraph 82-135(i) of the ITAA 1997. None of the other exclusions in section 82-135 of the ITAA 1997 apply to the payment, to exclude it from being an ETP. Therefore, the condition in paragraph 82-130(1)(c) has been satisfied. | Detailed Reasoning - Conclusion: The lump sum payment of $X meets the conditions required under subsection 82-130(1) of the ITAA 1997. As a result, the payment is an ETP.