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16 Jun 1111 Decision Impact Statement – Perfrement

The ATO has released a Decision Impact Statement on the decision of the Administrative Appeals Tribunal in Re Perfrement and FCT [2011] AATA 264; 2011 ATC 10-179.

The case concerned whether a payment received by the taxpayer from his employer on termination of his employment was a transitional termination payment (TTP) under s 82-10 of the Income Tax (Transitional Provisions) Act 1997 (TP Act). The taxpayer had applied for a private ruling about whether the redundancy payment was a TTP. The Commissioner ruled that it was not a TTP. The Tribunal upheld the taxpayer’s challenge to the assessment that denied the redundancy payment received by him the character of a TTP.

The ATO accepts that the decision of the Tribunal was reasonably open to it on the face of the contractual arrangement set out in the private ruling.

As the private ruling given to the applicant was confined to the question whether the redundancy payment received by the applicant was a TTP under s 82-10 of the TP Act, the Tribunal’s decision correctly only dealt with the application of that section to the payment. Accordingly, the Tribunal’s comments in paragraph 37 of its reasons for decision about the operation of s 82-10F of the TP Act are not part of the Tribunal’s decision.

Before a TTP is paid to an individual, s 82-10E requires the payer to give a pre-payment statement to the individual, setting out the taxable and tax-free components of the payment. Within 30 days of receipt of the statement, the individual can direct the payer under s 82-10F to make the payment to a complying superannuation fund (CSF). A payment then made to a CSF is treated under s 82-10G as not assessable income nor exempt income of the individual. Mistakenly, in this case, the taxpayer’s employer did not give a pre-payment statement to the applicant before it made the payment to him. The Tribunal commented that s 82-10F was enlivened because the employer was now required to make a pre-payment statement.

However, the ATO considers that, based on the arrangement set out in the private ruling, the Tribunal’s comments about the operation of s 82-10F in this case are misleading. Once a TTP is paid to an individual, the provisions of Subdivision 82-B of the TP Act deal with the assessability of the TTP in the hands of the recipient. Even if the recipient has mistakenly not been given a pre-payment statement, the provisions of s 82-10F are not later “enlivened” to affect what has already occurred under Subdivision 82-B.