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Is an eligible termination payment (ETP) income tax exempt for any part of the payment attributable to the number of days the taxpayer worked overseas?

No. An ETP cannot be apportioned between the periods of foreign and Australian service as an ETP relates only to the termination of employment and does not accrue on a daily basis. Taxation Ruling IT 2168 provides guidance on rules ascertaining the source of an ETP. Generally, an ETP will be assessable to the taxpayer if it is paid from a superannuation fund that is established and controlled in Australia

The taxpayer worked a number of years overseas. The taxpayer had been working for the employer before going overseas, and the employer terminated the taxpayer's employment sometime after the taxpayer returned to Australia. The taxpayer was a resident and lodged tax returns in Australia whilst overseas. Upon termination the taxpayer received an ETP from the employer.

For the purposes of section 27CD of the Income Tax Assessment Act 1936 (ITAA 1936) the ETP is not an 'exempt non-resident foreign termination payment', as the taxpayer was a resident of Australia for the entire time the taxpayer worked overseas.

The ETP may, however, satisfy the definition of an 'exempt resident foreign termination payment' (section 27CD of the ITAA 1936). If the ETP is an 'exempt resident foreign termination payment (subsection 27A(1) of the ITAA 1936) then it is exempt from income tax under section 27CD of the ITAA 1936. If, however, the ETP is not exempt from income tax under section 27CD, then it forms part of the taxpayer's assessable income. The ETP cannot be exempt from income tax under section 23AG of the ITAA 1936. This is because 'foreign earnings', as defined in subsection 23AG(7) of the ITAA 1936, does not include income assessable under Subdivision AA of Division 2 of the ITAA 1936. ETPs are assessable under that subdivision and therefore are not 'foreign earnings' under section 23AG of the ITAA 1936.