Taxation Ruling
IT 200
Lump sum payments - application of the reseck decision
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Please note that the PDF version is the authorised version of this ruling.
FOI status:
May be releasedFOI number: I 1102353FACTS
In Reseck v FC of T (1975) 133 CLR 45, a construction worker's employment was twice terminated by his employer because work was no longer available in the district. On the first occasion he was immediately re-engaged to work in another district for the same employer. His wages were paid in accordance with the relevant award but he also received certain other payments under an agreement between the unions and the employer. The agreeement specified that on satisfactory termination of employment an employee would receive a severance payment calculated according to the number of ordinary shifts worked by him.
2. At the end of both periods of employment the taxpayer was paid a lump sum severance payment. The application of section 26(d) was denied on the grounds that the severance payments were not lump sums received in consequence of retirement from, or termination of, employment. The assessment was upheld in the Supreme Court of Queensland. However, in a majority judgment the High Court reversed the Supreme Court decision and found that the two payments under consideration satisfied the requirements of section 26(d). The High Court found that the payments were lump sums, that they were allowances and that they were paid only on termination of employment. However, Gibbs and Stephen J.J. explicitly pointed out that it was not open to the Court to hold that the services of the taxpayer were not terminated, this having been admitted as a fact.
RULING
3. Application of the High Court decision should be restricted to cases where the facts are the same as those upon which the decision in Reseck's case was based; that is, that the payments made are lump sums, that they are allowances, gratuities or compensations and that, as a matter of fact, it may be accepted that the services of the employee have been terminated.
4. It would, for example, not be acceptable that a termination of employment had taken place, where an employee ceased work on a particular job on one day and then resumed work on another job some distance away with the same employer on the next day or within a period not inconsistent with the normal conditions of the industry in which he is employed. In such a case, the High Court's decision in Reseck's case should not be applied and any lump sum payment received on cessation of the first job would be assessable in full.
COMMISSIONER OF TAXATION
17 December 1975
References
ATO references:
NO 73/4868 F235
Date original memo issued:
17.12.75
Subject References:
LUMP SUM PAYMENTS
RETIREMENT
TERMINATION OF EMPLOYMENT
RESECK DECISION- EFFECT
Legislative References:
26(d)
Case References:
- Reseck v FC of T
133 CLR 45
(1975) 75 ATC 4213
(1975) 5 ATR 538