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01 Apr 15 LOL payments were ETPs – Bond, Kentish, Purvis

The Federal Court has found that loss of licence (LOL) payments made by Qantas to three pilots who suffered medical conditions that resulted in the cancellation of their licences by CASA were employment termination payments (ETPs). The court dismissed the taxpayers’ appeal from a decision of the Administrative Appeals Tribunal in Re Purvis and Ors and FCT [2013] AATA 58.

In the case of Bond, the taxpayer was an airline pilot employed by Qantas. He received a lump sum payment, pursuant to an insurance policy, upon the loss of his pilot’s licence (LOL payment) following its cancellation as a result of his failure to pass a medical examination. His employment with Qantas was terminated.

The Tribunal affirmed the Commissioner’s decision that the LOL payment was assessable income on the basis that it was an “employment termination payment” (ETP) under Div 82 of the Income Tax Assessment Act 1997, or if it did not have that character, because it was assessable under s 15-2 of the ITAA 1997, or as a taxable capital gain.

On appeal, the Federal Court held that the Tribunal was not shown to have been in error, on either a question of fact or on a question of law, in deciding that, in the particular circumstances of the taxpayer, the LOL payment was received in consequence of the termination of his employment. The LOL payment was an ETP. It followed on from, and was an effect or result in a causal sense of the termination of the taxpayer’s employment with Qantas. It was a consequence of the termination of his employment, in the circumstances, because he was no longer able to work as a Flight Crew Employee. That was his employment. He accepted that his employment would come to an end for the same reason as his entitlement to the LOL payment arose.

The court further found that the LOL payment was not a capital payment “for or in respect of” the taxpayer’s condition, nor was it a fringe benefit.

Bond v FCT [2015] FCA 245 (Mansfield J, 25 March 2015).

The court also dismissed the appeals by the two other pilots. Although the facts in each case were slightly different, the issues, and the court’s reasons for decision, were the same. See:

Purvis v FCT [2015] FCA 246 (Mansfield J, 25 March 2015)

Kentish v FCT [2015] FCA 247 (Mansfield J, 25 March 2015).

 


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