The AAT has confirmed that lump sum payments made to former Qantas pilots under a “loss of licence insurance” scheme made under an agreement with their employer if they lost their pilots’ licence for medical reasons were assessable to the pilots as eligible termination payments (ETPs). The pilots argued that the payments, which were made in the 2007-08 year, were not assessable ETPs essentially because they were received for the loss of their pilots’ licences and not in consequence of the termination of their employment. They also argued that if the payments were received in consequence of the termination of their employment, then the payments were capital payments in respect of personal injury and therefore fell within exception for ETPs under s 82-135(i) of the ITAA 1997.
However, in finding that the payments were assessable ETPs, the AAT found that the payments were related to, or were an effect or followed from, the termination of the pilots’ employment with Qantas. In particular, it found that the relevant agreements under which the payments were made “contemplated that a pilot’s employment will terminate as a result of the pilot’s licence being cancelled or not renewed”. In this regard, the AAT also noted that the payments were meant, in part, to recover the cost of a pilot retraining himself for a career other than flying, following a permanent loss of licence and “to get themselves re-established in a new career”.
Accordingly, the AAT concluded that the relevant connection between the payment and termination of employment existed as evidenced in the relevant agreements that gave rise to the payments. The AAT then found that the payments as ETPs were not exempt capital payments for, or in respect of, personal injury essentially because there was nothing to suggest the taxpayers’ capacity to obtain other employment was taken into account in determining the payment.
(AAT Case [2013] AATA 58, Re Purvis & Ors and FCT, AAT, Ref Nos 2011/3492-3494, Dunne SM, 4 February 2013.)
[LTN 24, 6/2/13]