Issue
Is the post-June 1983 component of an Eligible Termination Payment (ETP), which has been rebated to ensure a 0% rate of tax, included in the taxable income of the taxpayer in calculating eligibility for the pensioner rebate under section 160AAA of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The post-June 1983 component of the ETP is included in the taxable income of the taxpayer for the purposes of calculating the taxpayer's eligibility for the pensioner rebate.
Facts
The taxpayer received an ETP which consisted entirely of a post-June 1983 taxed component. The taxpayer received an ETP rebate which ensured that the rate of 0% tax was applied to the component. The component was included in the taxable income of the taxpayer in calculating the eligibility of the taxpayer for the pensioner rebate. Due to the inclusion of the component, the taxpayer's taxable income exceeded the threshold for the pensioner rebate and the taxpayer was not entitled to the rebate.
Reasons for Decision
Subsection 27B(1) of the ITAA 1936 includes in the assessable income of the taxpayer the taxed and untaxed elements of the post-June 1983 component of an ETP made in relation to the taxpayer in the year of income (see also section 10-5 of the Income Tax Assessment Act 1997 (ITAA 1997)).
The taxable income is then calculated according to section 4-15 of the ITAA 1997 as assessable income less deductions. The post-June 1983 component of an ETP is 'eligible assessable income' (EAI) under section 159S of the ITAA 1936. Under section 159SA of the ITAA 1936, a rebate applies to the post-June 1983 component to ensure that a specified maximum rate of tax is applicable to the EAI. In this case as the taxpayer is over 55 years of age the maximum rate specified is 0%. This rebate does not operate to exclude any amount of EAI from the taxable income of the taxpayer.
The pensioner rebate is calculated in accordance with section 160AAA Of the ITAA 1936. Under Regulation 151 of the Income Tax Regulations, the pensioner rebate is calculated by reference to taxable income.
The Administrative Appeals Tribunal confirmed the use of calculations in this way in the case of Henry Thomas Pooley v. Commissioner for Taxation (1998) 38 ATR 1060.