Lump sum payment in arrears tax offset - salary and wages accrued less than 12 months before date lump sum paid

Is the taxpayer entitled to a lump sum payment in arrears tax offset under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936) where the salary and wages accrued less than 12 months before the date the lump sum was paid?

No. The taxpayer is not entitled to a lump sum payment in arrears tax offset under section 159ZRA of the ITAA 1936 as the salary and wages accrued less than 12 months before the date the lump sum was paid.

The taxpayer received, after 1 July 1986, a lump sum payment of salary and wages in the current income year

The payment was for salary and wages accrued during a period in the previous income year. That period was less than 12 months before the payment of the lump sum.

The taxpayer was not suspended from duty at any time.

Section 159ZRA of the ITAA 1936 provides a lump sum payment in arrears tax offset where: • the assessable income of the taxpayer of a year of income includes an eligible lump sum (or sums); and • the total arrears amount is not less than 10% of the amount (if any) remaining after deducting that total arrears amount from the normal taxable income of the current year.

An 'eligible lump sum' is defined as a lump sum payment of eligible income received on or after 1 July 1986 that is included in the assessable income of the taxpayer and accrued, in whole or in part, in an earlier year or years of income (subsection 159ZR(1) of the ITAA 1936).

The definition of 'eligible income' includes salary or wages to the extent to which they accrued during a period ending more than 12 months before the date on which they were paid (subsection 159ZR(1) of the ITAA 1936).

'Eligible income' also includes salary or wages paid after re-instatement to duty following a period of suspension from duty, to the extent that the salary or wages accrued during the period of suspension (subsection 159ZR(1) of the ITAA 1936).

The taxpayer's salary and wages were accrued during a period less than 12 months before the lump sum payment was made. The salary and wages did not accrue during a period of suspension. There is therefore no 'eligible income' and as a result the lump sum is not an 'eligible lump sum'. Accordingly, the taxpayer is not entitled to a lump sum payment in arrears tax offset under section 159ZRA of the ITAA 1936.