Issue
Is the taxpayer entitled to the low-income tax offset under section 159N of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer receives an Eligible Termination Payment (ETP) during the year of income?
Decision
No. The taxpayer is not entitled to the low-income offset under section 159N of the ITAA 1936 as the ETP is included in the taxpayer's assessable income and consequently their taxable income exceeds the cut-out threshold.
Facts
The taxpayer received an ETP during the year of income and well as assessable income from other sources.
The ETP was made up of both a pre July 1983 component and a post June 1983 taxed element.
The taxpayer's taxable income (including the ETP) exceeded $24 450.
Reasons for Decision
Section 159N of the ITAA 1936 allows a tax offset to a taxpayer whose taxable income in a year income is less than $24 450. The rebate is $150, reduced by 4 cents for every $1 for the amount by which the taxable income of the year exceeds $20 700.
Section 6-10 of the Income Tax Assessment Act 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.
Subsection 27B(1) of the ITAA 1936 provides that assessable income includes the taxed element of the retained amount of a post-June 1983 component of an ETP. Section 27C of the ITAA 1936 includes in assessable income 5% of the retained amount of a pre-July 1983 component of an ETP.
The combination of the taxpayer's: • post-June 1983 taxed element, • 5% of the pre-July 1983 component, and • other income and deductions,
results in a taxable income that exceeds $24 450.
Accordingly, the taxpayer is not entitled to a low-income tax offset under section 159N of the ITAA 1936.