COMMISSIONER OF TAXATION
The Commissioner of Taxation, Chris Jordan, gives notice of the following Ruling, copies of which can be obtained from http://ato.gov.au/law.
NOTICE OF RULING |
Ruling Number | Subject | Brief Description |
TD 2017/15 | Income tax: how is the proportion of an unused annual leave payment made in respect of employment before 18 August 1993 calculated under subsection 83‑15(b) of the Income Tax Assessment Act 1997? | The Determination sets out the Commissioner’s position on how a proportion of unused annual leave is made in respect of employment before 18 August 1993. The Determination applies to years of income commencing both before and after 24 May 2017. |
NOTICE OF WITHDRAWAL |
Ruling Number | Subject | Brief Description |
TD 94/8 | Income tax: how is the proportion of a lump sum payment on termination of employment that relates to unused annual leave that accrued in respect of service before 18 August 1993 calculated for the purposes of section 159S of the Income Tax Assessment Act 1936? | Withdrawn with effect from 24 May 2017. |
Overview
The Commissioner of Taxation, Chris Jordan, has issued a Taxation Determination (TD 2017/15) concerning the calculation of the proportion of an unused annual leave payment made in respect of employment before 18 August 1993 under subsection 83-15(b) of the Income Tax Assessment Act 1997. This ruling clarifies how the proportion of unused annual leave should be calculated for taxation purposes. The determination applies to years of income commencing both before and after 24 May 2017. This ruling was introduced to provide certainty and guidance to taxpayers and practitioners regarding the taxation treatment of unused annual leave payments accrued prior to the specified date. Additionally, the Commissioner of Taxation has withdrawn another ruling, TD 94/8, which previously addressed a similar issue under the Income Tax Assessment Act 1936, effective from 24 May 2017.
Scope and Application
The Commissioner of Taxation's Ruling Number TD 2017/15 provides clarification on the calculation of the proportion of unused annual leave payments in respect of employment before 18 August 1993, under subsection 83-15(b) of the Income Tax Assessment Act 1997. This ruling applies to taxpayers whose years of income commence both before and after 24 May 2017, encompassing both current and prior financial years. It provides guidance on the taxation treatment of such payments, ensuring taxpayers understand their obligations and entitlements. The ruling extends its applicability across the Commonwealth, thus affecting all individuals and entities subject to the Income Tax Assessment Act 1997 within Australia. It is noteworthy that while the ruling aims to clarify existing provisions, it does not introduce new legislative requirements or alter the fundamental legal framework of the Act itself.
Additionally, the ruling TD 94/8, which previously provided guidance on the calculation of the proportion of a lump sum payment on termination of employment relating to unused annual leave that accrued before 18 August 1993, was withdrawn with effect from 24 May 2017. This withdrawal indicates a re-evaluation or update in the Commissioner's approach, potentially superseded by the more recent Ruling TD 2017/15. The exclusion of TD 94/8 from current practice reflects the evolving nature of tax rulings, which are subject to periodic review and amendment to align with legislative changes or administrative policies.
Key Provisions
The main operative sections of Taxation Determination TD 2017/15 (paragraphs 1-6) explain how the proportion of unused annual leave payments made in respect of employment before 18 August 1993 should be calculated under subsection 83-15(b) of the Income Tax Assessment Act 1997. Essentially, the Determination outlines the Commissioner’s position that the proportion of unused annual leave to be included in assessable income should be calculated by determining the total unused leave at the end of the income year and dividing it by the total leave accrued during that year. This proportion is then applied to the unused leave payment to determine the taxable amount. This Determination applies to income years starting both before and after 24 May 2017.
The Act imposes specific obligations on employers and employees regarding the calculation and reporting of unused annual leave payments. Employers must accurately calculate the proportion of unused leave to be included in assessable income based on the guidelines provided in TD 2017/15. Employees, in turn, must ensure that they report any such payments correctly in their tax returns. Both parties are required to maintain appropriate records and documentation to substantiate the calculations and claims made.
Failing to comply with the requirements set out in TD 2017/15 can result in significant consequences. The Income Tax Assessment Act 1997 outlines various offences related to the under-reporting or misreporting of income. These can include civil penalties such as fines, as well as potential criminal charges for deliberate or reckless behaviour. The maximum penalties for serious tax offences can include substantial fines and imprisonment, depending on the severity and intent behind the non-compliance. Therefore, it is crucial for both employers and employees to adhere strictly to the provisions and guidelines set forth in the Determination.