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The AAT has held that no part of an amount of $1,937,000 received by the taxpayer under a deed of release following the commencement of legal proceedings against the taxpayer's former employer (St George/Westpac) was a transitional termination payment under s 82-10 of the Income Tax (Transitional Provisions) Act 1997. The taxpayer argued that $929,066.96 of the payment could be attributed to his entitlement to a redundancy payment that was provided for under his contract of employment in force must before 10 May 2006 as required by s 82-10(1)(b), and should therefore be subject to tax at concessional rates.

The AAT agreed with the Commissioner's submission that "the language of s 82-10 is concerned to identify, with some precision, the source of the entitlement to the receipt to determine whether it was in force before the transition date. Whether a payment is made because of a pre-10 May 2006 contractual entitlement must be determined having regard to the question of whether the entitlement was capable of being specified or calculated, albeit at some time in the future, as at 9 May 2006".

The AAT held that the taxpayer was unable to establish that an identifiable part of the settlement amount was attributable to a contractual entitlement in force as at 9 May 2006. The AAT said, at para 59:

"In this case, there was dispute about whether CDPJ was entitled to a retrenchment payment based on his 2008/2009 bonus as well as his base salary. This dispute was resolved as part of a broader settlement. The claims and counter claims made in the Federal Court proceedings were many and varied. It is impossible to determine the basis for the settlement or the extent to which the lump sum included compensation for causes of action beyond the contractual claims. For instance, there were apparently negotiations in November 2008 about redundancy entitlements that would be received by CDPJ as a result of the Westpac/St George merger and it is unclear whether any claims were made or paid as part of the settlement in respect of these negotiations."

The taxpayer's submissions that the AAT should apportion the settlement amount by looking through it and making its own determination was also rejected by the AAT on the basis of the decisions in Dibb v FCT [2004] FCAFC 126 and FCT v Spedley Securities Ltd [1988] FCA 31.

The Commissioner's objection decision was affirmed: CDPJ and FCT [2014] AATA 535 (AAT, Redfern SM, 5 August 2014).

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