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Is the lump sum payment of xx (the Payment) received by xx (the Taxpayer) from their former employer, an employment termination payment (ETP) as defined in subsection 82-130(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. This private ruling applies for the following period: DD MM YYYY The scheme commenced on: DD MM YYYY

The Taxpayer was employed by Valuation Australia Services (the Employer) from MM YYYY. On DD MM YYYY, the Taxpayer was engaged by the Employer as a General Manager. On DD MM YYYY, the Employer terminated the Taxpayer's employment. On DD MM YYYY, the Taxpayer commenced a claim for breach of general protections in the Fair Work Commission, claiming damages for economic loss and hurt, humiliation and distress. As a result of the above claim the Taxpayer and the Employer resolved the dispute by means of a Deed of Settlement and Release (the Deed), entered into on DD MM YYYY. The Deed refers to the Taxpayer as 'Employee' and the Employer as 'Company'. Clause 3 of the Deed ('Termination Payment') states: 3 Termination Payment 3.1          Amounts (a)           Provided the Company has received a copy of the Deed signed by the Employee by 9 August 2024 , the Company will pay the Employee a settlement payment by 5:00pm on 16 August 2024 . In the event the Deed is signed and returned by the Employee after 9 August 2024, the Company will pay the Employee within fourteen (14) days of the date the Employee returns a signed copy of the Deed to the Company.

The Deed identifies the Settlement Payment as being the amount of $xx. On DD MM YYYY, the Taxpayer received a payment of $xx from the Employer. On DD MM YYYY, the Taxpayer lodged an application for a private ruling, seeking conformation of the correct tax treatment of the Payment. Specifically, the Taxpayer advised that the Payment had been incorrectly treated as wages, and asked for confirmation that it be treated as 'genuine compensation for damages', and not taxable income. In support of the application, the Taxpayer provided the following: •                A copy of the signed Deed of Settlement and Release made on DD MM YYYY. •                A copy of an electronic statement from Westpac Bank, showing a credit of $xx deposited on DD MM YYYY. The transaction references the names of both the Taxpayer and an Employer director. •                A copy of the Taxpayer's final payslip from the Employer, for the period DD MM YYYY to DD MM YYYY.

•                A copy of a letter dated DD MM YYYY from xx, Principal Solicitor for xx Lawyers, advising he acted for the Taxpayer in relation to the matter with the Employer, and stating that the Payment was 'separate from any entitlements for hours worked, wages or unused leave'. The letter also states that the Payment 'is not referable to any services rendered'. •                An email referencing Clause XX.X of the employment contract between the Taxpayer and the Employer, referencing the employee actions that would provide the Employer with the right to terminate employment without notice.

Income Tax Assessment Act 1997 section 82-130 Income Tax Assessment Act 1997 section 82-135 Income Tax Assessment Act 1997 Paragraph 82-135(1)(e) Rulings 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'

Detailed reasoning Employment termination payment (ETP) A payment is an ETP if it satisfies all the requirements in section 82-130 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 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: 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 ... Following the termination of the Taxpayer's employment, a claim was commenced by the Taxpayer with the Fair Work Commission. In settlement of that claim, the Payment was made to the Taxpayer. The Payment would not have been made had there been no termination of employment. The termination of employment and the Payment are intertwined and connected. The Payment is considered to be received by the Taxpayer in consequence of the termination of his employment, as it resulted from a claim that the Taxpayer lodged in relation to his employment being terminated. Therefore, the requirement of subparagraph 82-130(1)(a)(i) of ITAA 1997 has been met.

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 Taxpayer's employment was terminated on DD MM YYYY and the termination payment was made on DD MM YYYY, which is within 12 months of termination. Therefore, the requirement under paragraph 82-130(1)(b) of the ITAA 1997 is satisfied. Payment is not a payment mentioned under section 82-135 of the ITAA 1997 Section 82-135 of the ITAA 1997 lists specific payments that are excluded from being an ETP. Included amongst those excluded payments are payments for unused annual leave, unused long service leave, genuine redundancy payments, and capital payments for, or in respect of, personal injury. There is no evidence that the Payment is of a type that is excluded as an ETP under section 82-135. This requirement is satisfied. Conclusion

As the Payment was received by the Taxpayer in consequence of the termination of employment, was received no later than 12 months after the termination, and is not a payment under section 82-135 of the ITAA 1997, the Payment is an ETP, and taxable as such.