Q: We have a client who has terminated an employee.
They have paid out the annual leave and notice period separately.
They have an agreement from mediation (MBIE facilitated). – attached.
The $50,000 is listed under hurt and humiliation. This seems a lot to be just hurt and humiliation and I would wonder if some of this would come under an exit inducement and be taxable.
Are we OK with it all being hurt and humiliation and therefore non-taxable?

Or would some of this been deemed exit inducement and taxable – and if so, how do we determine the amount that should be taxed?

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A: 50K is not the norm for a settlement payment. Is this person earning 200K or more (so it would be relative to what they earn)? But this has been agreed upon, and you just follow it.

The client needs to understand that IRD would be very interested in this if they audited and reassessed the whole process. If signed off by a mediator, IRD can decide that it does not meet the requirements of a settlement payment.