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Is the taxpayer assessable under section 83-10 of the Income Tax Assessment Act 1997 (ITAA 1997) on a lump sum payment of unused 'special leave' paid by their employer upon retirement?

Yes. The taxpayer is assessable under section 83-10 of the ITAA 1997 on a lump sum payment of unused 'special leave' paid by their employer upon retirement.

The taxpayer retired from their employment.

The taxpayer received a lump sum payment from their employer which included an amount for unused 'special leave'.

Under the terms of their employment the taxpayer was entitled to annual leave.

In addition to this however, the taxpayer was given an additional amount of leave called 'special leave'.

The 'special leave' was given by the employer in recognition of the particular demands and rigours of the taxpayer's duties and their impact on the taxpayer and their family. It was intended as additional leave for rest and recreation which was justified by the demands of a particular period of employment.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 83-10 of the ITAA 1997 which deals with lump sum payments received on retirement or termination of employment in lieu of annual leave.

The lump sum payment is included in the taxpayer's assessable income (subsection 83-10(2) of the ITAA 1997).

Subsection 83-10(3) of the ITAA 1997 provides that a payment a taxpayer receives in consequence of termination of their employment is an 'unused annual leave payment' if it is: • for annual leave the taxpayer has not used; • a bonus or other additional payment for annual leave the taxpayer has not used; or • for annual leave, or bonus or other additional payment for annual leave, to which the taxpayer was not entitled just before their employment termination, but that would have been made available to the taxpayer at a later time if it were not for the termination of their employment.

The taxpayer had no entitlement to the additional period of 'special leave'. The leave was provided by the employer as a privilege. The special leave was made available as an additional period for rest and recreation in recognition of the increased demands placed on the taxpayer as a result of the duties they performed. It served a similar purpose to that of annual leave.

The availability of the special leave was determined by reference to matters similar to those matters used to determine entitlement to annual leave. Therefore the payment of special leave falls within the definition of annual leave for the purposes of section 83-10 of the ITAA 1997. Note: If the special leave accrued in the period prior to 18 August 1993, the tax offset available under section 83-15 of the ITAA 1997 will apply and the lump sum will be subject to the maximum rate of tax of 30%.

Date of Amendment Part Comment 27 February 2015 Facts Remove reference to pre-18 August 1993 leave accrual period Reasons for Decision Replace references to sections 26AC and 26AD of the ITAA 1936 with sections 83-10 of the ITAA 1997 effective 1 July 2007. Revise Note on tax offset. Legislative references Removed references to sections 26AC and 26AD and 159SA of the ITAA 1936. Added sections 83-10 and 83-15 of the ITAA 1997.

Date of Amendment | Part | Comment

27 February 2015 | Facts | Remove reference to pre-18 August 1993 leave accrual period

Reasons for Decision | Replace references to sections 26AC and 26AD of the ITAA 1936 with sections 83-10 of the ITAA 1997 effective 1 July 2007. Revise Note on tax offset.

Legislative references | Removed references to sections 26AC and 26AD and 159SA of the ITAA 1936. Added sections 83-10 and 83-15 of the ITAA 1997.