Stark and Commissioner of Taxation (Taxation)

This matter concerned an appeal by Mr Stark against a decision of the Commissioner of Taxation regarding the tax treatment of a payment received by Mr Stark. The dispute centred on whether this payment, received in settlement of legal proceedings against his former employer, constituted an Employment Termination Payment (ETP) for income tax purposes. The case was heard by R J Olding SM in the Administrative Appeals Tribunal.

The primary legal issue before the Tribunal was to determine the characterisation of the payment received by Mr Stark. Specifically, the Tribunal had to decide whether the payment was an ETP, as contended by the Commissioner, or whether it was of a capital nature and therefore not taxable, as argued by Mr Stark. Mr Stark further contended that if the payment was not an ETP, it was excluded from being an ETP under specific provisions of the *Income Tax Assessment Act 1999* (Cth), namely sections 82-135(i) (relating to personal injury) and 82-135(e) (relating to genuine redundancy payments).

The Tribunal reasoned that the payment was received in consequence of the termination of Mr Stark's employment. It was established that the legal proceedings, which were settled by the payment, would not have been commenced if Mr Stark's employment had not been terminated. The authorities indicated that it was sufficient for a payment to follow on from the termination of employment, even if it did not solely relate to wrongful dismissal or was not the dominant cause. The Tribunal found that the payment settled all claims made in the litigation, including those related to the termination of employment, and therefore concluded it was received in consequence of that termination. Consequently, the Tribunal determined that the payment qualified as an ETP. The Tribunal also considered Mr Stark's assertion that the payment was a genuine redundancy payment, noting his submission that the employer had certified the termination as "end of contract" while a business unit was closed, but did not make a definitive finding on this point as it was not necessary for the determination of the primary issue.

The Tribunal concluded that the payment was an ETP and therefore subject to concessional tax treatment. The Commissioner's objection decision, which had assessed the payment as ordinary income, was set aside, and the Tribunal's decision was that the payment was to be taxed concessionally as an ETP.