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1 Will the settlement payment of $XXX, paid as part of the conciliation process through Australian Human Rights Commission (AHRC), be considered an employment termination payment under section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 Yes This private ruling applies for the following period: For the year ended XXX The scheme commenced on: XXX

The taxpayer commenced employment with the Employer on XXX. The taxpayer resigned effective from XXX. The final payslip was received on XXX. the taxpayer submitted a complaint against the Employer on XXX alleging disability discrimination under the Disability Discrimination Act 1992. A conciliation was held on XXX and subsequent to the conciliation conference, an agreement was reached. The taxpayer signed the Deed of settlement and release on XXX. The taxpayer received gross settlement paid into their bank account on XXX. The taxpayer stated that there was no tax withheld from the payment. Taxpayers arguments and contentions The taxpayer stated that the payment may fall under the exempt CGT payment or exempt compensation as the conciliation process is part of an alternate dispute resolution process. The taxpayer stated that the payment was not made because of the resignation or for any employment income related to the time employed at XXX. The taxpayer stated you started trying to do the complaint whist still at XXX but due to stress and the situation at work, it was not completed.

Income Tax Assessment Act 1997 section 82-130 Income Tax Assessment Act 1997 section 82-135 Income Tax Assessment Act 1997 section 118-22

A payment is an ETP if it satisfies all the requirements in section 82-130 of the ITAA 1997 and is not specifically excluded under section 82-135 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. Payment received 'in consequence of' the termination of employment 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 courts' decisions on the meaning of the phrase, the Commissioner's view on the meaning and application of the 'in consequence of' test are 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 ) .

Paragraphs 5 and 6 of TR 2003/13 state that: 5.... the Commissioner considers that 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. 6. The phrase requires a causal connection between the termination and the payment, although the termination need not be the dominant cause of the payment. The question of whether a payment is received in consequence of the termination of employment will be determined by the relevant facts and circumstances of each case. At paragraph 32 of TR 2003/13, the Commissioner considers payments from a former employer to settle litigation: 32. The Federal Court in Dibb v. FC of T adopted the approach of Goldberg J in Le Grand

. At issue was whether a payment received by the taxpayer under a deed of release, following the settlement of Federal Court proceedings against his former employer, was an ETP. In deciding the payment was an ETP, Heery J held that the length of time between the termination of employment, the commencement of court proceedings and payment following settlement did not sever the causal connection between the termination and the payment. It was sufficient that the subject matter of the litigation was the termination. Heery J found at 296 that: 'The various causes of action whether breach of contract, conspiracy, breach of fiduciary duty or contravention of the Trade Practices Act were, as Goldberg J would say (Le Grand at [36]), 'interwoven and intertwined' with the termination. The payment was a consequence of the settlement, which was a consequence of the Federal Court proceeding, which in turn was a consequence of the termination.' The payments in these cases were ETPs because there was a sequence of connected events following the termination, which ultimately led to the payment. The payments would not have been made but for the termination.

In this case, there was a dispute between the taxpayer and the Employer alleging adverse treatment, breaches of their contractual and statutory employment rights, and unlawful exclusion from the worksite. The taxpayer and the Employer agreed to settle the claims under the terms of the Deed of settlement and release. The settlement payment is to extinguish all claims and all matters relating to the taxpayer, releasing and discharging the Employer from any claim or liability in relation to those matters. Both parties have given no admission of liability, as stated in the Deed. The payment would not have been made but for the termination of the taxpayers employment. Therefore, it is considered that the payment was received by the taxpayer in consequence of the termination of employment. As such, the requirement of subparagraph 82-130(1)(a)(i) of ITAA 1997 has been satisfied. Payment received no later than 12 months after termination Paragraph 82-130(1)(b) of the ITAA 1997 requires that the payment must be received no later than 12 months after the termination of employment.

In this case, the payment was received more than 12 months from the date of termination. As per the Deed of settlement and release, the employment ceased and as per the bank statements the payment was received more than 12 months after termination. Subsection 82-130(4) of the ITAA 1997 states that: Paragraph (1)(b) does not apply to you if: (a) you are covered by a determination under subsection (5) or (7) ... Subsection 82-130(5) of the ITAA 1997 states: The Commissioner may determine, in writing, that paragraph (1)(b) does not apply to you if the Commissioner considers the time between the employment termination and the payment to be reasonable, having regard to the following: (a) the circumstances of the employment termination, including any dispute in relation to the termination; (b) the circumstances of the payment; (c) the circumstances of the person making the payment; (d) any other relevant circumstances. Subsection 82-130(7) states: The Commissioner may, by legislative instrument, determine that paragraph (1)(b) does not apply to either or both of the following, as specified in the determination: (a) a class of payments; (b) a class of recipients of payments.

Commonwealth determination made by James O'Halloran, Deputy Commissioner of Taxation on 28 March 2018 under reference ETP 2018/1 (which is a legislative instrument, as required by subsection 82-130(7)) states that: Paragraph 82-130(1)(b) of the ITAA 1997 does not apply to a late termination payment if the payment is received more than 12 months after the termination of a person's employment because: (a) legal action was commenced within 12 months of the termination of employment, of which the subject is either or both: (i) the person's entitlement to the payment; (ii) the amount of the person's entitlement; or (b) the payment was made by a liquidator, receiver or trustee in bankruptcy of an entity that is otherwise liable to make the payment, where that liquidator, receiver or trustee is appointed no later than 12 months after the termination of employment. ETP 2018/1 - Explanatory statement, at paragraph 8 states:

The legal action must have commenced within 12 months of the termination of a person's employment. Legal action is intended to cover any Court, Tribunal and other proceedings of a judicial or quasi-judicial nature which may result in the payment of an amount in consequence of the termination of a person's employment. In this case a complaint was lodged within 12 months of the termination of employment. These actions resulted in the settlement as per the Deed of settlement and release. We therefore believe that the conditions in ETP 2018/1 are satisfied, which means paragraph 82-130(1)(b) of the ITAA 1997 does not apply due to being covered by a determination under subsection 82-130(7). Payments mentioned in section 82-135 of the ITAA 1997 Paragraph 82-130(1)(c) of the ITAA 1997 specifies that an ETP does not include a payment mentioned in section 82-135 of the ITAA 1997. An exclusion under paragraph 82-135(i) of the ITAA 1997 includes a capital payment for personal injury as compensation for your inability to be employed. In Re Luke and Federal Commissioner of Taxation

[2011] AATA 801; (2011) 2011 ATC 10-216; the AAT accepted that the taxpayer had been adversely affected by what they perceived to be unreasonable harassment and discrimination in their employment, but said that 'personal injury' does not extend 'beyond physical injury and mental illness to include emotional hurt'. The AAT added that: Evidence is required that the payment had some form of identifiable and unambiguous connection with a personal injury, for which compensation was necessary as a reflection of the fact that the applicant's capacity to derive income from personal exertion had been impaired. In view of the above, a physical and/or mental injury would require diagnosis by a qualified medical practitioner to fall within the meaning of 'personal injury'. The payment must also be calculated by reference to the nature of the injury and the extent to which the injury will affect your capacity to derive income from employment.

Although the settlement payment relates to the taxpayers claim for discrimination at work, the settlement has been made without admission of liability. There is no indication that the settlement payment is in relation to personal injury likely to impact the taxpayers capacity to derive income. The payment is not for, or in respect of, personal injury, which would be excluded from being an ETP under section 82-135. Therefore, in accordance with paragraph 82-130(1)(c) of the ITAA 1997, the payment you have received is not a payment referenced in section 82-135 of the ITAA 1997, so is not excluded from being an ETP. Conclusion The payment received by the taxpayer from the Employer is an ETP in accordance with section 82-130 of the ITAA 1997. Other relevant information Section 118-22 of the ITAA 1997 treats an ETP received by a taxpayer as being included in their assessable income. As such, any capital gain made will be reduced to zero. As any capital gain made will be reduced to zero, under the anti-overlap provisions, it is not necessary to consider the exemption in section 118-37 of the ITAA 1997.

The payment would need to be included in the income year it was received by the taxpayer and it is classified as an ETP. The amount up to the ETP cap amount will be taxed at a concessional rate. The amount in excess of the ETP cap amount will be taxed at the top marginal rate. For more information on the ETP caps that apply, see Taxation of termination payments for the ATO website by typing QC 26218 into the search engine.