Private ruling: PAYG Withholding - Employment Termination Payment
Date of advice: 16 June 2016
Published: August 2016
Ruling period: Income year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the Employer obliged to withhold tax from the transfer payment pursuant to section 12-85 of the Tax Administration Act 1953 (TAA)? | A1: Yes

Relevant facts and circumstances: 1. The Employee has been employed by the Employer for a period of over 6 years. 2. The Employee's date of birth is during the 1960-61 income year. 3. The Employer is a State Owned Corporation. The State Government intends to sell a business division conducted by the Employer to a private sector entity. 4. The Employee's employment with the Employer will be terminated upon the sale of the division to the private sector purchaser. The Employee will subsequently take up employment with the private sector purchaser. 5. Upon termination of their employment, the Employee will receive a transfer payment based on their years of service.

Relevant legislative provisions: Taxation Administration Act 1953 section 12-85

Reasons for decision: Summary: Section 12-85 of Schedule 1 to the TAA states an entity must withhold an amount from any of the following payments it makes to an individual: (a) a superannuation lump sum; (b) a payment that is an employment termination payment or would be one except that it is received more than 12 months after termination of employment. The transfer payment is in consequence of the termination of employment and is therefore an employment termination payment under section 82-130 of the ITAA 1997. Unless the employee is covered by a determination exempting them from the 12 month rule, the payment must be received within 12 months of the employee's termination of employment to qualify as an employment termination payment under section 82-130 of the ITAA 1997. In this case, as the payment is considered to be an employment termination payment, the Employer must withhold an amount from the transfer payment made to the employee.