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18 Nov 1010 Taxpayer received an employment termination payment

In reviewing an objection against an adverse private ruling decision, the AAT has held that a payment of $395,000 received by a taxpayer was an “employment termination payment” (ETP) within s 82-130(1) of ITAA 1997, having been received by the taxpayer “in consequence of the termination” of his employment.

The payment was made after the cessation of the taxpayer's employment in settlement of a claim made against the taxpayer's employer alleging unlawful discrimination and breach of contract. The AAT said, at para 17:

"It follows from the reasoning in Reseck, McIntosh, Le Grand and Dibb that the payment was received by the taxpayer “in consequence of the termination” of his employment. Even accepting that the termination of the taxpayer’s employment need not be the dominant cause of the payment, it is clear that, as was the case in Dibb, the payment was a consequence of the settlement, which was a consequence of the Federal Court proceeding, which in turn was a consequence of the termination. Or, as Brennan J summarised the position in McIntosh, the payment would not have been made but for the termination. The payment is therefore an ETP (and the taxable component is assessable income – see s 82-130(2) and s 82-10(2) of the Act) unless it is a payment mentioned in s 82-135 of the Act."

The taxpayer also submitted that s 82-135 of the Act applied to the payment so as to remove it from s 82-130(1). In particular,  he relied on paragraph (i) of s 82-135, which specifies that a payment is not an ETP if it is "a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to derive income from personal exertion [as defined]". This submission was rejected by the AAT, as it was impossible to identify any part of the total sum of $395,000 as consideration for, or in respect of personal injury.

An Employee and FCT [2010] AATA 912 (AAT, Frost SM, 17 November 2010).


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