Issue
Whether the taxpayer's out of court settlement payment qualifies as an Eligible Termination Payment.
Decision
The out of court settlement payment does qualify as an Eligible Termination Payment.
Facts
The taxpayer whose employment was terminated, lodged an application to a State Industrial Relations Commission claiming unfair dismissal by the employer on the grounds of disability. An agreement was subsequently reached in which the employer was required to pay the taxpayer an out of court settlement and the taxpayer was required to resign from employment as from the date of the payment.
Reasons For Decision
Income Tax Ruling IT 2424 states that a '... payment received by way of settlement ... in respect of an unlawful act of dismissal qualifies as an eligible termination payment. Essentially, the compensation payment for unlawful dismissal ... is considered to be made "in consequence of the termination of employment of the taxpayer"'.
The out of court settlement payment paid to the taxpayer qualifies as an eligible termination payment in accordance with paragraph (a) of the definition of an eligible termination payment in subsection 27A(1) of the Income Tax Assessment Act 1936 .