Taxation Ruling
IT 2097
Taxation of lump sum payments in lieu of long service leave paid on retirement where entitlements to leave varied after 15 August 1978
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Please note that the PDF version is the authorised version of this ruling.
FOI status:
May be ReleasedFOI number: I 1121800PREAMBLE
Section 26AD of the Income Tax Assessment Act 1936 requires that a lump sum payment in respect of unused long service leave paid to a taxpayer after 15 August 1978 in consequence of retirement from, or termination of, any office or employment shall be included in assessable income to the extent that it is a payment for long service leave which accrued after 15 August 1978. To the extent that the lump sum payment is attributable to long service leave accrued on and before 15 August 1978 only 5% of the payment is included in assessable income.
2. Sub-section 26AD(3) contains a formula for apportioning a lump sum payment for long service leave made after 15 August 1978 where the payment relates to long service leave accrued both before and after 15 August 1978.
RULING
3. In a situation recently brought to the attention of this office, an industrial award covering long service leave entitlements in a particular industry was varied some time after 15 August 1978 to increase the long service leave entitlement over the entitlement which applied at 15 August 1978, e.g. the entitlement after 15 years service was increased by five weeks.
4. The question which has arisen is whether the additional entitlements, because they did not come into existence until after 15 August 1978, should be regarded as attributable to long service leave accrued after 15 August 1978 so that any payment in respect of the additional entitlements would be assessable in full.
5. Additional entitlements of the type provided under the awards are no more than increases in the long service leave applicable to various periods of service. They do not relate solely to long service leave accrued after 15 August 1978. In the result a lump sum payment in respect of unused long service leave paid to a taxpayer after 15 August 1978 in consequence of retirement from, or termination of, an office or employment and which is based on an increased long service leave entitlement of the type hereunder consideration should be apportioned in accordance with sub-section 26AD(3).
COMMISSIONER OF TAXATION
16 August 1984
References
ATO references:
NO 83/4772
Date of effect:
Immediate
Subject References:
LUMP SUM PAYMENTS ON RETIREMENT
LONG SERVICE LEAVE
Legislative References:
26AD